Latin America in the Global Economy: Running Faster to Stay in Place
Gereffi, Gary & Hempel, Lynn
During the latter half of the twentieth century, the organization of the world economy has changed in fundamental ways. Until the end of the Second World War, the advanced industrial countries...
...Sears Roebuck, select few Latin Ameri for years the largest department- advanced industrial pr store chain in Mexico, is being joined by other prominent U.S...
...9 The share of Costa Rica's total export earnings that are derived from nontraditional products jumped from 12% in 1984 to 43% by 1990...
...Level two consisted of new factories and equipment installed by transnational corporations in the 1980s and 1990s...
...Unlike agricultural exports, Costa Rican fish exports are controlled by two national firms that are supplied by thousands of small fisherman...
...After 1980, under pressure from multilateral financial institutions, this old pattern of internationalization was replaced by a new internationalization, 'o...
...Mexican exports soared from 4% (18,000 vehicles) to 44% (472,000) of output from 1980 to 1993, Brazilian exports grew from 13% (157,000 vehicles) to 24% of production (330,000), and even Argentina went from 1% of production (3,600 vehicles) to 9% (30,000...
...Although three-quarters of the 750 firms in the autoparts industry in Brazil are of national origin, the largest and most dynamic of the autoparts firms are foreign-owned...
...Randolph J. Harris, "Apparel Retailing in Mexico," Textile Outlook International (May, 1995...
...In return, IBM agreed to export a substantial portion of its computer production...
...Lynn Hempel is a doctoral candidate in sociology at Duke University E REPORT ON THE AME S 18REPORT ON TRANSNATIONAL INVESTMENT Latin America to move toward the high-value-added niches in the global production hierarchy, and to develop a more integrated pattern of industrial development with substantial local ownership and domestic linkages...
...Profits in buyer-driven chains derive not from scale, volume and technological advances as in producer-driven chain...
...Brazil was also slow in developing a local semiconductor industry...
...retail invasion are likely to be quite significant...
...and workers who are able to acquire new skills and receive higher pay because of the investment in human capital and local technology development in selected sectors of the economy...
...In many ways, the new internationalization built on the foundations laid by ISI strategies, since many domestic industries were established through jointventure and local-content requirements...
...similarly, Mexico's export expansion was facilitated by recurrent devaluations of the Mexican peso, most recently in 1994-95...
...Latin America's involvement in these networks is quite different from that of Asia, and as a result Latin America has exploited only some of the opportunities that are presented by economic globalization...
...20NAULA REPORT ON THE AMERICAS NACILA REPORT ON THE AMERICAS ;-: : ; :: 20REPORT ON TRANSNATIONAL INVESTMENT Cambodia and Laos at the bottom...
...Asia's development hierarchy has Japan at the core, followed by the East Asian NICs, then in descending order of industrial capability by China, Southeast Asia, South Asia, and formerly socialist economies such as Vietnam, Table 1 roduction by Third World Region, 1980-92 Gross Domestic Product per Capita ($1992) 1980 1992 3,710 688 177 2,857 369 1,634 2,232 8,527 1,068 252 2,691 320 1,735 1,957 Growth Rates, 1980-92 (%) GDP GDP per capita 8.0% 5.9 5.1 1.6 1.9 3.6 -0.4 6.7% 3.6 2.9 -0.5 -1.2 0.5 -1.0 llings, "The New International Context of Development, " in d., Global Change, Regional Response (New York: Cambridge 95), p. 373...
...In addition, given the neoliberal emphasis on privatization in Latin America, transnational corporations have fortified their dominant role by recapturing strategic positions in Latin America's extractive and intermediate goods industries, as well as in the burgeoning new service sectors like telecommunications and banking...
...By the 1960s, a range of advanced ISI factories were spread throughout the region in diverse industries such as petrochemicals, pharmaceuticals, automobiles, machinery and computers...
...Retailers Shape Overseas Production Networks," in Gary Gereffi and Miguel Korzeniewicz, eds., Commodity Chains and Global Capitalism (Westport, CT: Praeger, 1994...
...Giant U.S...
...21...
...First, industrialization and development are not synonymous...
...Penney, Dillards and Saks Fifth Avenue...
...In Mexico, the real minimum wage in 1989 was less than one-half (47%) of its 1980 level, and in El Salvador, workers in 1989 earned just 36% of what they did at the beginning of the decade.' 9 The rivalry among neighboring EPZs to offer transnational corporations the lowest wages fosters a perverse strategy of "competitive devaluations," whereby currency depreciations are viewed as a major means to increase international competitiveness...
...tariff schedule provision HTS 9802.00.80 (formerly clause 807), enterprises operating in EPZs have an incentive to minimize locally purchased inputs because only U.S.-made components are exempt from import duties when the finished product is shipped back to the United States...
...A1980-92 refers to the increase or decrease in the percentage share of exports, 1980 to 1992...
...Burns, "Free-Trade Zones," p. 40...
...In global capitalism, economic activity is not only international in scope, it is also global in organization...
...for core status in the world system, n, however, it no longer is sufficient...
...By 1994, the Mexican government had already established vendor-certification uh ca oO schemes that issued quality ratings and made recommendations for improvement to small and mediumsized manufacturers that hoped to supply large foreign retailers in Mexico and eventually the United States...
...See Gary Gereffi, "Mexico's 'Old' and 'New' Maquiladora Industries: Contrasting Approaches to North American Integration," in Gerardo Otero, ed., Mexico's Future(s): Economic Restructuring and Politics (Boulder, CO: Westview Press, 1996...
...This pattern of trade-led industrialization has become common in labor-intensive, consumer-goods industries such as garments, footwear, toys, houseware, consumer electronics, and a variety of hand-crafted items (e.g., furniture, ornaments...
...nations...
...policy...
...Costa Rica, a heavily indebted country with the fourth highest per capita debt in the world, has been disbursing a significant portion of central government funds (8% of the national budget in 1990) as export tax credits to nontraditional exporters...
...i large share of the total informal-sector workforce in developing countries (39% in Latin America), which places them at the very end of the subcontracting networks of transnational corporations, where they are paid on the basis of piece rates, rather than working days, and they are unprotected by labor legislation...
...J. Gail Burns, "Free-Trade Zones: Global Overview and Future Prospects," Industry Trade, and Technology Review (September, 1995), p. 35...
...Under pressure from the multilateral lending institutions, one Latin East Asia (NICs) American country after another was Southeast Asia forced to opt for neoliberal policies...
...2 Producer-driven commodity chains refer to those industries in which transnational corporations or other large integrated industrial enterprises play the central role in controlling the production system (including its backward and forward linkages...
...Third, transnational corporations have reasserted their importance in the region...
...Hourly compensation rates for apparel workers in the early 1990s were $1.08 in Mexico, $0.88 in Costa Rica, $0.64 in the Dominican Republic, and $0.48 in Honduras, compared to $8.13 in the United States...
...This has limited the ability of Gary Gereffi is professor of sociology at Duke University He is coeditor with Miguel Korzeniewicz, of Commodity Chains and Global Capitalism (Praeger, 1994...
...Buyer-driven commodity chains, by contrast, are characterized by highly competitive and globally decentralized factory systems...
...While copper remained Chile's most important single export (over one-third of total exports), three groups of nontraditional items-fruits, fish products and forestry productsaccounted for an additional onethird of the export total in the early 1990s...
...Mexico is taking a new tack to link up with buyer-driven commodity chains...
...The computer industry is a clear case of assertive industrialization in Latin America, where state policy was used to try to promote domestic technological development and enhance the capabilities of local firms...
...While the state's ability to define and defend national economic interests is shrinking, the demands placed on it for social programs to handle those who are marginalized or unable to compete in the global economy will undoubtedly grow...
...21, No...
...retailers may be put on hold or slowed somewhat because of Mexico's current slump, two longer-term implications of the U.S...
...2) commercial capital-i.e., large retailers, merchandisers of brandnamed products, and trading companies that create and control global sourcing networks typically headquartered in developed countries, coordinated from semiperipheral locations (the NICs), and with production concentrated in the low-wage periphery...
...Perhaps the best illustration of this are Korean automobile companies, although all of the East Asian NICs, following the example of Japan, have utilized export-oriented development strategies to move to relatively autonomous, high-value-added niches in both producer-driven and buyer-driven commodity chains [see "The Keys to East Asia's Export Success," p. 26...
...The resulting uncertainty in fiscal incentive policy has caused a serious downturn in export performance and threatens the future of Costa Rica's nontraditional export strategy...
...First, Mexico's informal distribution networks, made up primarily of street markets, have been the dominant retail outlet for many consumer items, including about one-third of all apparel sales...
...4. World Bank, The East Asian Miracle: Economic Growth and Public Policy (New York: Oxford University Press, 1993...
...11 (1993), pp...
...Unlike the East Asian NICs, however, Latin American countries largely lack a solid, autonomous domestic base for generating and accumulating a national stock of capital for investment in locally driven export-oriented development...
...Since the 1950s, however, the industrialization gap between developed and developing countries has been narrowing...
...hird World countries have responded to economic globalization in several ways...
...7 In the case s telephone headsets at of fresh fruits, whose share in total exports rose to 10% by the early 1990s (from 1% in the mid-1970s) and with annual export revenues approaching $1 billion, four of the five fresh fruit firms were owned by transnational corporations...
...discount chains, like Wal-Mart or Price Club, are likely to erode sales first and foremost in the informal sector, with negative consequences for employment and income among these small vendors...
...UNECLAC, International Competition and Globalization Challenging the Brazilian Automotive Industry (Santiago: UNECLAC, 1995...
...These export surges had different destinations...
...2 3 Argentina has become one of the world's premier exporters of transmissions...
...Only Brazil and Mexico have significant advanced manufacturing sectors...
...roducer-driven commodity chains like automobiles and computers offer numerous insights into how the Latin American NICs are making the transition from import-substituting to export-oriented development strategies...
...market...
...Second, while industrialization may be a necessary condition growing...
...Buyer-driven commodity chains, by contrast, have been virtually absent in Latin America...
...UNECLAC, Restructuring and Changing Market Conditions in the Brazilian Auto Components Industry (Santiago: UNECLAC, 1995...
...There is an equally distinct regional division of labor within the Americas, with the United States at the core, followed by Canada, Brazil and Mexico in a second tier, then the Southern Cone countries, the Andean countries, and finally the small Central American and Caribbean economies...
...In addition, authoritarian rather than democratic political regimes have been associated with high economic growth rates in many countries...
...the export-oriented assembly of traditional manufactured goods, such as apparel and electronics items, using imported components...
...Rather, the unique combinations of high-value research, design, sales, marketing and financial services allow the retailers, designers and traders to act as strategic brokers in linking overseas factories and traders with evolving product niches in their main consumer markets...
...These exports go disproportionately to developed-country markets...
...6 ountries are connected to the global economy through a variety of export roles, each with distinct implications for development...
...7. Debt-equity conversions gained widespread acceptance because they offered transnational corporations an implicit subsidy, through discounts, of nearly 50% of their investment...
...Thus, whereas producer-driven commodity chains are controlled by industrial firms at the point of production, the main leverage in buyer-driven industries is exercised by retailers and brand-name merchandisers at the marketing and retail end of the chain...
...South Asia As the state abruptly withdrew from Latin America many of its traditional activities, faith in the market came to replace faith in Sub-Saharan Afri, the government as the ideological Middle East basis for these regimes...
...The specifications are supplied by the large retailers or designers that order the goods...
...Industrial production has shifted out of the West, initially to Japan, then to the newly industrialized countries (NICs) of Latin America (Mexico, Brazil and Argentina) and East Asia (Hong Kong, Taiwan, South Korea and Singapore), and now to virtually every country of the world...
...since then, no debt-equity conversions have occurred...
...2 (1992...
...3. A detailed comparative analysis of Latin American and East Asian development strategies is found in Gary Gereffi and Donald L. Wyman, eds., Manufacturing Miracles: Paths of Industrialization in Latin America and East Asia (Princeton, NJ: Princeton University Press, 1990...
...UNCTAD, World Investment Report 1994, p. 90...
...In the 1980s, a new wave of maquiladora plants began to push beyond this enclave model to a more advanced type of production, making components for complex products like automobiles and computers.14 Despite the predominance of more technologically sophisticated and higher value-added assembly operations in the new maquiladoras, the passage of the North American Free Trade Agreement (NAFTA) is likely to further increase the attractiveness of old-style apparel oriented and textile assembly operations in Mexico over those in the Caribbean Basin, whose countries ze local don't enjoy the tariff benefits that NAFTA accords to Mexico...
...Ninety percent of Mexico's exports went to the United States and Canada, while 80% of Brazilian exports went to South America...
...For a review of some of the critiques of the World Bank perspective, see Gary Gereffi, "State Policies and Industrial Upgrading in East Asia," Revue d'conomie Industrielle, No...
...As in Chile, there is a pronounced "multinationalization" of Costa Rica's nontraditional agricultural export sector, with Del Monte dominating fresh pineapple exports, and foreign firms also controlling the export of flowers and ornamental plants.10 Export subsidies are an important source of political conflict in the nontraditional export sector, however...
...See International Labour Organization, Recent Developments in the Clothing Industry (Geneva: ILO, 1995), pp...
...Moreover, only certain groups are likely to benefit from globalization: large firms that can assimilate new technology and adopt international marketing strategies, and thereby move to more profitable niches in producer-driven and buyer-driven commodity chains...
...Industrial and commercial capital has promoted globalization by establishing two distinct types of international economic networks, which may be called "producer-driven" and "buyer-driven" commodity chains...
...27, No...
...While this "market friendly" orientation reputedly underlies the economic success of the nations in East and Southeast Asia, the implications for Latin America are far less clear...
...In Latin America and the Caribbean, exports were nearly stagnant during the 1970s (an annual growth rate of 0.9...
...UNCTAD, World Investment Report 1994, p. 20 3 . 13...
...Integrated international production networks were reinforced by ISI development strategies in Latin America and elsewhere during the 1960s and 1970s...
...The portfolio is quite balanced among agricultural products, fish and seafood, and some light manufactured products...
...Level one consisted mainly of old plants, severely dated technologies, and inefficient production processes making large and obsolete vehicles for the domestic market...
...Vol XXIX, No 4 JAN/FEB 1996 23REPORT ON TRANSNATIONAL INVESTMENT 1985...
...In 1994, the maquiladora industry generated nearly $6 billion in foreign revenue and employed 600,000 Mexicans.1 3 Until y ii n IT the past decade, Mexico's maquiladora plants typified low value-added assembly, with virtually no backward linkages (local materials typically accounted for only 24% of total inputs...
...The Dominican Republic is a prime example...
...Central American and Caribbean nations mainly export agricultural goods and apparel...
...Virtually all of the EPZ production in the region is of a very low value-added nature, which is a direct result of U.S...
...87-88...
...In Mexico, the new export plants are found in the northern part of the country, close to the U.S...
...Industrialization itself, however, may be losing the key status it once had as a definitive hallmark of national development.' There are two reasons for this...
...More significant is the incursion of giant U.S...
...Although national industrial policy has been sharply curtailed, local capital seems to be holding its own...
...Penney, athletic footwear companies like Nike and Reebok, and fashion-oriented apparel companies like Liz Claiborne and The Limited, is that these firms design and/or market, but do not make, the brand-named products they port in Honduras...
...Mexico introduced this policy in 1989, and by 1990 popular cars accounted for 25% of all automobile sales...
...For the majority in the region-workers in low-paying and low-skill jobs, peasants in subsistence or traditional export sectors, consumers hurt by devaluations and eroding standards of living, and firms unable to compete in increasingly open markets-the cost of globalization appears to exceed its benefits...
...2 5 Brazil's half-dozen vehicle-assembly companies are subsidiaries of transnational corporations from the United States, Germany, Italy and Sweden...
...Furthermore, regional integration schemes like NAFTA and Mercosur (which links Brazil, Argentina, Uruguay and Paraguay) are creating incentives for a regionalization of commodity chains, with greater potential for backward and forward linkages...
...While EPZs in Mexico and the Caribbean have been associated with undeniable gains in employment and foreign-exchange earnings, these benefits are offset by a picture of employment growth which is contingent on falling real wages and a decline in local purchasing power...
...In most Latin American nations, raw materials still make up 80% or more of total exports...
...Third World exports encompass a broad range of traditional items (such as coffee, bananas and tin) as well as nontraditional ones (such as snow peas, blue jeans and cars...
...In 1991, the mechanism lost its appeal when the price of Chilean foreign debt in the secondary market sharply increased...
...Within Latin America, the main types of exporting are: raw-material supplies, including processed "industrial commodities" and nontraditional agricultural exports...
...In addition, Brazil's computer-industry policy privileged hardware and, as a result, the country was unable to develop local software applications based on prevailing international standards...
...Meanwhile, the local exporters in the East Asian NICs concentrated on gaining the lion's share of U.S...
...Globalization" is much more recent than internationalization and implies functional integration between internationally dispersed activities...
...35-36...
...The state's role in export-oriented industrialization shifted from industrial policy to macroeconomic policy, and from favoring domestic linkages to facilitating international ones...
...2. See Gary Gereffi, "The Organization of Buyer-Driven Global Commodity Chains: How U.S...
...The legacy of failed ISI remains strong...
...Thus, if local computer companies in Mexico and Brazil are to survive, they will have to become more tightly tied to the supply chain of the transnational computer corporations, especially if they seek to expand their exports...
...This strategy, originally geared towards consumer-goods production for the domestic market, came to be based on producer-driven commodity chains...
...amounts of vertically integrated local manufacturing, and a growing number of alliances between transnational corporations and domestic firms...
...Chile, which enjoyed a solid decade of economic growth averaging 6% per year since 1983, supplemented its market-based economic reforms with a sharp turn towards export-oriented industrialization based on the country's abundant supply of natural resources...
...underwear imports, and are viewed by U.S...
...Regional and global strategies by transnational corporations are replacing those geared to maximizing profits in individual countries...
...imports of windshield wipers, insulated ignition wiring sets, seat belts, and seats for motor vehicles...
...Mobility from the semiperiphery to the core, le key status or from the periphery to the semiperiphery, cannot be defined simply in a definitive terms of a country's degree of indusnational trialization...
...Finally, in the region's two largest economies-Brazil and Mexico -manufactured goods account for more than half of total exports...
...s This is part of a new logic of regional integration introduced by a stricter enforcement of the national rules-oforigin clauses in NAFTA and the Caribbean Basin initiative...
...they account for one-half of the region's total exports and over three-quarters of its manufactured exports...
...The 1980s was labeled the "lost decade" for many Latin American nations, as they suffered through eco- Growth of P nomic recession, spiraling inflation, severe budget cuts in social expenditures, high levels of unemployment and underemployment, and pervasive poverty...
...2 7 Nonetheless, the biggest computer companies in the country remained foreign-owned...
...Burns, "Free-Trade Zones," p. 39...
...An alternative arrangement, more typical of Latin America, is integrated international production, where transnational corporations are key actors...
...Second, the region continues to be characterized by profound national and regional economic asymmetries...
...Under ISI, the state's strongest bargaining chip with transnational corporations was negotiating access to the domestic market...
...Transnational corporations, which have actively exploited Latin America's oil, mineral and agricultural resources since the nineteenth century, began to establish automobile assembly plants in large countries like Mexico, Brazil and Argentina in the 1920s...
...Substantial fiscal deficits, documented cases of corruption, growing labor strife, and concerns over large-firm dominance have led to cutbacks in the export subsidy program...
...by this latter year, EPZs also generated over 20% of the Dominican Republic's total foreign-exchange earnings.1 6 U.S...
...4 Unlike Latin America, most Asian economies have experienced high economic growth rates, substantial gains in industrial competitiveness, and rising per capita incomes since 1980 [see Table 1...
...The companies that develop and sell brand-named products exert substantial control over how, when and where manufacturing will take place, and over how much profit accrues at each stage of the Vol XXIX, No 4 JAN/FEB 1996 19 ex s Vol XXIX, No 4 JAN/FEB 1996 19REPORT ON TRANSNATIONAL INVESTMENT chain...
...market and far from the old ISI factories near Mexico City...
...he most common form of export activity in developing countries is the laborintensive assembly of manufactured goods from imported com- Export ponents in export processing zones assembl (EPZs...
...department-stores (such as J.C...
...The Dominican Republic has an especially large dependence on EPZs, whose share of official manufacturing employment on the island increased from 23% in 1981 to 56% in 1989...
...Internationalization" refers to the geographic spread of economic activities across national boundaries...
...What distinguishes producer-driven systems is the control exercised by the administrative headquarters of transnational corporations...
...Each transnational corporation assembler in Brazil has its own popular-car model...
...Transnational corporations are now the dominant force in each of Latin America's three main export roles: resource-based sectors, traditional manufacturing industries, and advanced manufactured goods...
...Working hours only finish in EPZs are 25% longer than elsewhere, and the wages paid women with I are from 20% to 50% lower than those of men working in the same componen zones.12 Women also make up a from U.S...
...The most ambitious approach is the internationalization of national industries, led by local firms seeking to conquer foreign markets...
...Until the end of the Second World War, the advanced industrial countries of western Europe and the United States controlled most of the world's trade and industrial proThe industrialization gap between North and South has been nar Industrialization may be losing th it once had as hallmark of developer duction...
...the onset of NAFTA is expected to abolish the local-content policy entirely and allow computer firms established in the country to import finished computers and parts duty free...
...Brazil's "market reserve" policy in the late 1970s and early 1980s succeeded in giving Brazilianowned firms the lion's share of the country's rapidly growing minicomputer market...
...Globalization has improved the international competitiveness of many parts of the region, but not everyone is in a position to take advantage of global links...
...One of the main characteristics of the firms that fit the buyer-driven model, including retailers like Wal-Mart, Sears Roebuck and J.C...
...9. The data cited here for Costa Rica, as well as additional case studies of Chile and Guatemala, may be found in Bradford Barham, Mary Clark, Elizabeth Katz, and Rachel Schurman, "Nontraditional Agricultural Exports in Latin America," Latin American Research Review, Vol...
...This is because transnational corporations that originally invested in the ISI context were more interested in gaining access to Latin America's domestic markets than in production for export...
...The Latin American NICs were quite successful from the 1950s through the 1970s in moving from the assembly stage of manufacturing to the promotion of higher levels of local content, joint ventures with foreign partners, and sectoral export initiatives...
...2 6 The economic hardships of the 1980s and 1990s in both Mexico and Brazil paved the way for an important policy initiative, the "popular car" regime...
...This policy, driven by the concern to make cheap and fuel-efficient no-frills automobiles widely available for domestic consumption, consisted of providing tax deductions and tariff breaks for small cars (less than 1,000 cc engines) that could be sold cheaply (currently, around $7,200...
...This broad generalization, however, obscures pronounced development hierarchies within these regions, which are highly correlated with industrial diversification and export performance...
...transnational corporations like Fruit of the Loom and Sara Lee Corporation (the world's leading hosiery supplier, with brands like Hanes and L'Eggs) as part of "a trans-American alliance to take on Asian underwear manufacturers in world markets...
...More generally, between 1979 and 1989, local capital's portion of computer-industry revenues in Brazil grew from 23% to 59%, and locally owned firms expanded their share of university-trained employees in the industry from onethird to more than two-thirds...
...Annual average for 1980-93...
...Foreign direct investment, attracted to these traditional and new export industries by Chile's debt-equity conversion scheme known as Chapter XIX, was one of the pillars of the country's export-based strategy...
...Two- order...
...and the manufacture of advanced industrial products, such as automobiles and computers, within the integrated production and trade networks of transnational corporations...
...For most countries, delinking means marginalization...
...Brazil is among the which involved a strong comn countries that produce mitment to exports, substantial ducts such as cars...
...it also makes 60% to 80% of U.S...
...This pattern of diversified, export-oriented industrialization requires a more sophisticated explanation than the "cheap labor" hypothesis that views low-wage workers located in export processing zones as the catalyst for the surge of manufactured exports from the Third World...
...More important is a nation's success in upgrading its nent...
...strategic alliances have also been formed between Kmart and Liverpool, and Price Club and Comercial Mexicana...
...Over 200 EPZs currently employ nearly two million workers mining in more than 50 countries...
...The popular-car boom represents a striking contrast with the past, when auto producers focused on luxury models with higher profit margins for a restricted market...
...In producerdriven chains, manufacturers making advanced products like aircraft, automobiles and computers are the key economic agents not only in terms of their earnings, but also in their ability to exert control over backward linkages with raw material and component suppliers, and forward linkages into distribution and retailing...
...because Caribbean Basin venues are now the favored locales for export-oried products ented assembly in Latin America...
...Mexico's maquiladora industry, which was established in 1965, is made up of assembly plants (known as "maquilas") that mainly use U.S...
...Southern Cone countries such as Argentina and Chile also emphasize primary products, but they have somewhat higher levels of manufactured exports than is found in the Andean subregion...
...As developed economies shift toward high-value-added manufacturing and services, the center of gravity for production activities in many global industries has moved to the developing world...
...First, Latin America's exports are heavily concentrated in resource-based and traditional manufacturing industries...
...Export growth in the Dominican Republic's EPZs skyrocketed after a very sharp depreciation of its currency against the dollar in Table 2 Growth and Structure of Exports in Asia and Latin America, 1980-92 Exports (billions $) 1992 Asia Japan China Taiwan South Korea Indonesia Thailand Pakistan Bangladesh The Americas United States Brazil Mexico Argentina Chile Colombia Peru Costa Rica Guatemala Dominican Republic 339.5 84.9 81.3 76.4 33.8 32.5 7.3 1.9 420.8 36.0 27.2 12.2 9.6 6.9 3.6 1.8 1.3 0.6 Growth of Exports (annual average, %) 1980-92 4.6 11.9 11.0 11.9 5.6 14.7 11.1 7.6 3.8 5.0 5.4*** 2.2 5.5 12.9 2.5 5.2 0.0 -2.2 Structure of Merchandise Exports* (percentage share and change over time) Primary Commodies 1992 A1980-92 2 21 7 7 53 34 21 18 20 42 47 74 85 68 80 73 70 80 -2 -32 na -3 -45 -37 -29 -16 -12 -19 -14 -3 +5 -12 -4 +7 -6 +4 Textiles and Clothing** 1992 A1980-92 2 30 14 20 18 17 69 72 2 4 2 1 1 9 10 5 5 0 -2 +14 na -9 +17 +8 +32 +23 0 0 -1 -1 +1 +3 +4 0 -1 0 Machinery & Transport Equipment 1992 A1980-92 67 15 40 40 4 22 0 0 48 21 31 8 2 2 2 4 1 3 +12 +10 na +20 +4 +16 -2 0 +8 +4 +12 +1 +1 0 0 0 0 +2 *The products needed to bring each country's export total to 100% fall into the category of "other manufactures," which is not included in this table...
...The relative weight of Brazil and Mexico increases in proportion to the technological complexity of goods...
...Latin America's experience with globalization in the 1980s and 1990s has several problematic features...
...As such, it is not a new phenomenon...
...retailers to Mexico may increase the incentive to establish local supplier networks for buyerdriven commodity chains...
...In the automotive sector, the transition from ISI to export-oriented industrialization resulted in a dual economy, with two largely separate industries existing sideby-side...
...Between 1980 and 1993, they grew at an average annual rate of 3.4%.5 Whereas Latin America and the Caribbean remain primarily a raw-material exporting region, Asia has shifted dramatically away from primary commodities and toward manufactured exports in a strategy of continuous industrial upgrading...
...three-quarters of the firms are involved in textiles and apparel.15 In terms of employment, the Dominican Republic is the fourth-largest EPZ economy in the world (the fifth if China's Special Economic Zones are included...
...In Brazil, popular cars had an even more dramatic impact on the market...
...market, where over 90% of their exports are sold...
...This integration includes not only trade, but also foreign capital, especially foreign direct investment...
...Globalization thus perpetuates uneven development in Latin America...
...The transnational corporations in producer-driven chains therefore frequently participate in global oligopolies...
...East and Southeast Asia have increased their exports at an average annual rate of 9% during the 1970s, and almost 11% since 1980...
...The new manufacturing by developing nations is largely export-oriented...
...Around 80% of the workforce in EPZs are inputs women, the majority between 16 and 25 years of age...
...Mexico, for example, is one of the world's largest exporters of 4 and 6 cylinder engines...
...Exports as a percentage of gross domestic product (GDP) rose from 10% in the 1960s to 29% in 1985 and 37% in 1993...
...A number of countries, however, have been quite successful in upgrading primary-product exports, either by shifting to nontraditional agricultural and other primary goods 'e or by processing raw materials more before selling them as "industrial commodities" (for example, paper, plastics, petrochemicals and steel...
...Zach Coleman, "UnderWar," Winston-Salem Journal, August 7, 1995, p. B1...
...Almost all of Argentina's auto exports go to Brazil...
...2 4 Automotive exports are controlled by transnational corporations...
...Latin America's development hierarchy is evident in the divergent export profiles of individual countries [see Table 2, p. 23...
...For Third World nations that choose this particular strategy, the challenge is to try to harness the productive potential of transnational corporations, and to carve out more profitable positions in the global production chains of these companies, which supply export as well as domestic markets...
...The Andean countries are almost exclusively primary-product exporters (with the exception of Colombia, where manufactured exports make up one-third of the total...
...The current policy orthodoxy is composed of a familiar trilogy: liberalization--open up economies to international trade...
...UNECLAC, Restructuring and International Competitiveness: The Mexican Automobile Industry, pp...
...and (3) finance capital-i.e., commercial banks, official multilateral lending institutions (such as the World Bank and the International Monetary Fund), and, to a lesser degree, portfolio investors that supply the short-term funds used to finance global production and trade...
...Autarchy, however, is generally not considered a desirable-or feasible-option in an interdependent world...
...These clauses restrict duty-free access to the NACLA REPORT ON THE AMERICAS 22REPORT ON TRANSNATIONAL INVESTMENT U.S...
...Kaplinsky, "Export Processing Zones in the Dominican Republic...
...By the early 1990s, EPZs had S.-made become a leading source of exports and manufacturing s are exempt employment in various Caribbean port duties...
...privatization-reduce the role of the state...
...Brazil and Mexico A young woman assemb, accounted for 77% of the region- a maquiladora in Tijuan al total in 1992...
...IBM, which earlier was refused admission to the Mexican market because it would not set up a joint venture with a local partner, was allowed to establish a wholly owned subsidiary in Mexico...
...in Argentina, the more recent and smaller industry that exports components to Brazil and the global market has developed near the city of C6rdoba...
...6181...
...Devaluations, however, heighten already substantial wage differences in the region...
...retailers...
...Automotive exports in Latin American NICs have risen dramatically during the 1980s and 1990s...
...With Hong Kong and the oth followed a strategy of e the partial exception of the auto- ization spearheaded by motive and computer industries, Latin America's technology-intensive exports to global markets are low...
...Latin American exports have expanded in dramatic fashion, and at least some industrial upgrading has occurred in each of the region's main export roles...
...Second, the relocation of U.S...
...For example, the Dominican Republic, along with Costa Rica, Honduras and El Salvador, supply over 40% of all U.S...
...na: not available Source: World Bank, World Development Report, various years...
...Globalization requires the agency of three kinds of international capital: (1) industrial capital-i.e., vertically integrated transnational corporations that Bananas processed for establish international production thirds of Latin America: and trade networks through the agriculture or mining...
...8. United Nations Conference on Trade and Development (UNCTAD), Division on Transnational Corporations and Investment, World Investment Report 1994: Transnational Corporations, Employment and the Workplace (New York: United Nations, 1994), pp...
...8 Meanwhile, neoliberal economic policies decimated the country's domestic industrial framework, built up under ISI...
...71 (1995...
...6. This section draws upon the detailed analysis of the region's export performance found in United Nations Economic Commission for Latin America and the Caribbean (UNECLAC), Latin America and the Caribbean: Policies to Improve Linkages with the Global Economy (Santiago: UNECLAC, 1994), pp...
...Penney in Mexico or of advanced manufacturers such as General Motors and IBM...
...A few large exporters, mainly foreign firms such as Del Monte's pineapple subsidiary, PINVol XXIX, No 4 JAN/FEB 1996 21 Vol XXIX, No 4 JAN/FEB 1996 21REPORT ON TRANSNATIONAL INVESTMENT DECO, that are supposed to be helping to shore up national finances, have received the biggest tax credits...
...Latin America in the Global Economy 1. This theme is developed more fully in Gary Gereffi, "Rethinking Development Theory: Insights from East Asia and Latin America," in A. Douglas Kincaid and Alejandro Portes, eds., Comparative National Development: Society and Economy in the New Global Order (Chapel Hill: University of North Carolina Press, 1995...
...Mexico's computer decree of 1990 dropped local-content requirements to 30...
...Under U.S...
...Inter-American Development Bank, Economic and Social Progress in Latin America (Washington, DC: IDB, 1990), p. 28...
...In Mexico, while foreign firms accounted for two-thirds of all manufactured exports in the early 1990s, they supplied 99% of automotive exports...
...market only to products that originate within the region, thereby reducing the impact of Asian imports of intermediate as well as finished goods...
...Export-oriented assembly in Latin America is centered in Mexico and the Caribbean Basin because of this area's low wages and proximity to the U.S...
...Mexico followed a similar policy of emphasizing joint ventures and local production in the 1970s, but in 1984 the country shifted from ISI to export-oriented industrialization in computers...
...1855-1856...
...discount chains which augment retail consolidation by establishing joint ventures with Mexican partners: Wal-Mart, the largest retailer in the United States, and Cifra, Mexico's biggest retailing organization, have announced a 50-50 partnership...
...3 In the 1970s, the main source of external financing for ISI in Latin America shifted from foreign direct investment to increasingly heavy amounts of foreign borrowing, which culminated in the debt crisis of 1982...
...24NACLA REPORT ON THE AMERICAS NACIA REPORT ON THE AMERICAS 24REPORT ON TRANSNATIONAL INVESTMENT In order to attain the economies of scale needed for world-class manufacturing, these export industries tend to be highly specialized...
...Costa Rica has also experienced a dramatic nontraditional export boom...
...This is apparent in the disparate social and economic consequences of industrial growth in the Latin American and East Asian NICs over the past several decades...
...the primary objective was to export cars and components to regional and global markets...
...The severely truncated Latin American state-the legacy of structural adjustment-in no way resembles the strong proactive states that devised and executed the East Asian development strategy...
...UNECLAC, Technology and Work Organization in Latin American Motor Vehicle Industries (Santiago: UNECLAC, 1995...
...these countries, plus Argentina, Colombia and Venezuela, represented 90% of all manufactured exports in Latin America...
...The goal set by Latin American domestic elites was national economic development based on growth via industrial deepening...
...Continued innovations by the most developed countries tend to make core status an ever-receding frontier...
...A similar pattern of foreign dominance exists in the forestry and salmon sectors...
...Goods are shipped to these zones for assembly only, and therefore the the value added in the zones is sometimes counted as a service (labor) rather than as a merchandise export...
...Countries are incorporated in the global economy through international production, trade and financial networks which are dominated by foreign capital...
...Eastern Europe The new economic policies in Latin Source: Barbara Sta America and the Caribbean rest on the Barbara Stallings, e conviction that the region's future University Press, 19 depends on an improvement in its international competitiveness, along with further integration into the world economy...
...This constitutes a major impediment to increasing the integration between the activities in the zones and the local economy, and it limits the usefulness of EPZs as stepping stones to higher stages of industrialization...
...Ie There are, however, some positive signs...
...the two countries accounted for 60% of traditional exports, 77% of basic intermediate inputs, and 85% of regional exports of advanced industrial products...
...and European markets for consumer goods, which could be profitably supplied through buyer-driven chains...
...A third possibility is autarchy or exclusion from global trade and production networks...
...Peter Evans, Embedded Autonomy: States and Industrial Transformation (Princeton, NJ: Princeton University Press, 1995), p. 162...
...and deregulation-increase the space for foreign capital to operate in the region...
...There are 430 companies employing 164,000 workers in the country's 30 free-trade zones...
...While Mexico and Brazil, at the pinnacle of the region's development hierarchy, may reap some rewards, the vast majority of Latin American countries will be hard-pressed to keep *r East Asian NICs have pace with global change, running port-oriented industrial- )cal private firms, faster just to stay in place...
...2 0 Initial results look impressive...
...The figures for Mexico, Central America and the Caribbean substantially underrepresent apparel exports from these nations because the output of export processing zones is often excluded...
...The program was officially established in April, 1993, and by September, 1994, these compact models accounted for over 50% of all domestic car sales...
...These two industries are generally in different geographical locations...
...components to make goods for export to the U.S...
...Manufactured exports are thus highly concentrated in a few countries...
...Chile and Costa Rica provide good illustrations of the dynamics and dilemmas of the nontraditional export strategy...
...With the turn to more austere vehicles, the assemblers are pursuing a two-pronged strategy: a mass-production logic for the domestic market and high levels of specialization for export markets...
...These assembly-oriented export activities have frequently characterized only the initial stage of exportoriented industrialization in many nations...
...investors account for more than half (54%) of the companies operating in the zones, followed by firms from the Dominican Republic itself (22%), South Korea (11%), and Taiwan (3%).17 Caribbean EPZs often have highly specialized export niches...
...By the early 1990s, portfolio investment and foreign direct investment had replaced international commercial bank loans as the primary source of foreign capital...
...UNECLAC, Restructuring and International Competitiveness: The Mexican Automobile Industry (Santiago: UNECLAC, 1995...
...Despite its current recession, the lure of Mexico's nearly 100 million consumers, half of whom are under the age of 20, has proved irresistible for U.S...
...Export growth within Asia has accelerated since 1970...
...This is most characteristic of capital- and technology-intensive industries like automobiles, computers, aircraft and heavy machinery...
...2 2 Although the ambitious expansion plans of the U.S...
...Profitability is greatest in the relatively concentrated segments of global commodity chains characterized by high barriers to the entry of new firms...
...Raphael Kaplinsky, "Export Processing Zones in the Dominican Republic: Transforming Manufactures into Commodities," World Development, Vol...
...medium and small-sized enterprises that can join the region-based supplier networks of transnational corporations, whether those of giant retailers like Wal-Mart or J.C...
...Buyer-driven commodity chains refer to those industries in which large retailers, designers, and trading companies play the pivotal role in setting up decentralized production networks in a variety of exporting countries, typically located in the Third World...
...activities of overseas subsidiaries...
...Economic globalization is not a frictionless web of arm's-length market transactions...
...indeed, it has been a prominent feature of the world economy since at least the seventeenth century, when colonial empires began to carve up the globe in search of raw materials and new markets for their manufactured exports...
...mix of economic activities toward products and techniques that require skilled workers, rising wages, and higher levels of value added...
...They are part of a new exports still stem from breed of "manufacturers without factories" that separate the physical production of goods from the design and marketing stages of the production process...
...F or nearly five decades until the 1970s, Latin America followed a strategy of import-substituting industrialization (ISI...
...High and growing levels of inequality in income distribution limit domestic markets and generate an over-reliance on exports...
...Spurred by NAFTA, the Americanization of Mexican retail- A Ford plant in Sio Pa ing is in full swing...
...Domestic firms are most prominent as producers in nontraditional export activities, as assemblers in the EPZs, and as component suppliers in the advanced manufacturing sectors...
...2 1 Although it may make sense for a single country to devalue its currency in order to attract users of unskilled labor to their production sites, the advantages of this strategy evaporate quickly when other nations simultaneously engage in wage-depressing competitive devaluations, which lower local standards of living while doing nothing to improve productivity...
...Production is generally carried out by tiered networks of Third World contractors that make finished goods for foreign buyers...
...5. World Bank, World Development Report 1995 (New York: Oxford University Press, 1995), p. 187...
Vol. 29 • January 1996 • No. 4
