By the 1960s, American multinational corporations started to outsource their production to special trade zones in Mexico known as maquiladoras. The primary initial reasons for such transfers of industrial capital was the complete abdication of the American government to levy duties in the face of anti-free market foreign trade practices. In order to remain solvent in the face of such predatory foreign trade practices, American multinationals sought to exploit cheap labor and the subsidies offered by the Mexico and other foreign governments. Soon, American multinationals exported their productive capacity to other non-market and even communist countries. Their products were then sold in the American market. By the 1970s, the self-preservation of the multinationals morphed into shareholder-driven greed. Business Process Outsourcing (BPO or simply outsourcing) was a major feature of the fundamental transformation of American capitalism from a stakeholder-driven model to that of a selfish, quasi-libertarian system which focused on the amassing of massive profits for major shareholders and high level executives.
However, average Americans suffered tremendously from such economic arrangements. Towns and whole cities became desolate, post-industrial wastelands. Citizens who were unemployed or underemployed as a result of globalization became addicted to welfare, dangerous drugs, crime, and a sense of general despair. The tax base become strained while vital municipal services suffered. Local businesses formerly dependent on the recently closed or relocated manufacturing businesses suffered as a result of the negative multiplier effects stemming from lost incomes and production. Parts manufacturers, local diners, repair companies, demand for fuel, chemicals, toy stores, car dealers, etc. all experienced severe losses and even closure as a result of free trade, globalization, and outsourcing.
“If tariff barriers are removed and a national policy of free trade is adopted, the real situation will be this: AMERICAN CAPITAL, PLUS AMERICAN KNOW-HOW, EXPORTED TO CHEAP LABOR FOREIGN COUNTRIES TO PRODUCE PRODUCTS FOR SALE IN THE AMERICAN MARKET.” Quoted from Lewis E. Lloyd, Tariffs: The Case for Protection
In February 1954, an article The Economist observed that “Another, and probably more general, reaction to the removal of tariff protection would be for American companies to set up subsidiaries in Europe, to take advantage of low labor costs there, and export their product back to the United States.” Quoted from Lewis E. Lloyd, Tariffs: The Case for Protection
According to a study compiled by the Senate Committee on Banking and Currency (chaired by Senator Homer Capehart, R-Indiana) reported that 20% of imports into the United States were shipped by overseas subsidiaries of American firms. Quoted from Lewis E. Lloyd, Tariffs: The Case for Protection
“…now we find entire industries transferring their American plants abroad, or constructing new plants overseas.” Senator George Malone (R-NV), 1958
“…for their own salvation, whole industries would be forced to go abroad; that other industries and entire communities, would be closed down and bodily ‘relocated’ within these United States” as a result of the refusal to enact tariffs to protect American industries. Senator George Malone (R-NV), 1958
The first maquiladora plants commenced operations in 1965 with only 12 factories. The Associated Press November 14, 1986
Maquiladoras receive government subsidies like preferential tariffs and taxation. Maquilas pay no tariffs on materials and semi-finished products imported into Mexico. When maquilas ship finished products back to the US, they pay tariffs only on the value added in Mexico, not the value of the entire product. University of Delaware Accessed From: http://www.udel.edu/leipzig/texts2/maquiladoras.html
Caterpillar purchase foreign-made parts for its domestically assembled products by 1971. In 1967, Singapore, Mexico, South Korea, Taiwan, and Hong Kong all built export platforms for American multinationals to take advantage of cheap labor. The products were to be exported back to the American market. Information quoted from Judith Stein, Pivotal Decade
Between 1969 and 1971, an increasing number of American multinationals created export platforms in foreign nations. In 1970, Bendix shut down its plant in York PA and opened a new facility in Mexico. Six hundred employees were laid off. In 1970, Warwick Electronics closed its plant in Illinois and opened facilities in Japan and Mexico. One thousand six hundred employees were laid off. General Instrument closed two plants in New England. RCA transferred an operation from Ohio to Belgium and Taiwan. Information quoted from Judith Stein, Pivotal Decade
The first firms to relocate to Mexican maquiladoras were Litton Industries, Transitron, Motorola, Fairchild, Hughes Aircraft, and General Electric. By 1969, licenses were given to 72 US firms to relocate plants to Mexico. By 1974, the number of Mexican maquila plants totaled 655. Other American multinationals which established maquiladora plants included Rockwell, Burroughs, General Instrument, GTE Sylvania, RCA, Levi Strauss, Puritan, and Kayser-Roth. In a period of less than 10 years, the maquiladoras employed 13% of the Mexican border region’s workforce. Some of the maquiladoras became nicknamed by its workers as “little Detroit” because Chrysler and General Motors located plants which produced wiring harnesses, seat covers, radios, instrument panel padding, electronic controls, and shock absorbers. A General Electric spokesman remarked that his firm relocated a plant from Providence to Mexico in response to the low wages. He stated “…workers earn less than $2 per hour, compared with a $5.84 minimum in Providence.” At the time of this move, the General Electric Executive Director Frank Hickey bragged about a profit increase of $23 million. Other maquiladora operations were established in El Salvador, Haiti, Colombia, and North Africa. Information quoted from Barry Bluestone and Bennett Harrison, The De-Industrialization of America
The AFL-CIO petitioned the Tariff Commission to eliminate sections 806.30 and 807.00 of the Tariff Code which allowed American firms to profit from the maquiladoras. These sections allowed American firms which were present in the maquiladoras to import duty free raw materials from the United States. The finished products are produced in the maquiladoras and then exported back to the United States at a duty which reflected only the value added in processing. New York Times May 24, 1971
“…to acquire American capital and technology, some Communist governments now offer the same anti-labor appeal as right-wing authoritarian regimes.”
“A Polish official laud(ed) the establishment of a Singer plant in Poland (and) boasted that his country offers both cheap labor and ‘a reliable source of supplies not threatened by industrial conflict.”
“If I had been assigned to write the Singapore labor ordinances, I couldn’t have done a better job for my company or any other.”
Paul Blumberg Inequality in an age of decline
In 1970, industrialist Cyrus Eaton negotiated a $40 million joint venture tire plant in the Eastern Bloc where the Communist state-owned partner would “own and operate the plant, supplying the operational management and labor.” Eaton’s Western-based operation of the joint venture would be located in Switzerland, which would market the tires everywhere in the West. Eaton explained that “This enabled the Eastern country to earn hard currency and because of lower labor costs the venture can sell tires cheaper than Western companies can. The plant in the East sells the tires to the marketing subsidiary at cost…thus leaving profits to the joint marketing subsidiary.” Charles Levinson, Vodka Cola
“Multinationals today mock even the private enterprise system which gave them birth and whose virtues they parade. They made deals with the Communist bloc reminiscent of sweatshop days here at home. The Communists offer cheap labor, no unions, no strikes, political pricing of raw materials and finished products for the multinational capitalists. In exchange, the multinationals provide new technology-the industrial potential which the US system created, often paid for by American taxpayers. The US policy, as in the case of Romania, has been to grant most favored nation treatment to imports from these nations. Production now moves to the Eastern European Communist countries, as multinationals seek ever-cheaper labor and even auto production by General Motors in Poland has been announced-for export to the United States and across the globe.” Resolution on Multinational Corporations, Adopted by AFL-CIO Convention, October 1975
“The list of ‘monopolists’ involved in co-production deals makes fascinating reading: General Motors, Exxon (Esso), Ford, Unilever, IBM, Krupp, ITT (played a leading part in setting up Pinochet’s regime in Chile), Coca-Cola, Du Pont, Westinghouse, ICI, Union Carbide, Fiat…Many of them are bitter opponents of trade unionism in their own plants and all of them, needless to say, collect their share of the surplus value created by the Eastern workers employed in the various projects.”
Socialist Standard, Volume 75 1979
In April 1977, Levi Strauss signed an agreement with communist Hungary for the production of blue jeans. Under the terms of the contract, Levi Strauss delivered material to Hungary. They were produced at lower production costs as a result of the abysmal wages of the Hungarian workers. The Hungarians then exported the jeans back to the United States. Levi Strauss reportedly concluded a similar outsourcing agreement with East Germany. Other American multinationals transferred their manufacturing to the Warsaw Pact nations. These firms included IBM, ITT, Dow Chemicals, and DuPont. As a result of the dumping and outsourcing, the United States witnessed plant closures. For example, textile plants were idled in the United States as a result of dumping by Eastern European communist states. Levinson, Charles. Vodka Cola
IBM and Pepsi signed licensing agreements with East Germany. IBM licensed the state-owned computer company Robotron to produce computers for sale to the West, while Pepsi signed an agreement in 1974 to produce and sell soft drinks in Rostock. Hart, James A. and Schultze-Zeu, Dieter. US Business and Today’s Germany
“We are actually creating and protecting jobs in the United States. By taking advantage of the lower labor costs on this side of the border, American companies are able to stay in business and compete with Japanese, West Germans, and other foreign companies. If they had to pay the prevailing United States wage rates for assembling their products many of them would be priced out of the market.” J.F. McLaughlin, Mississippi businessman who specialized in setting up maquiladoras in Mexico, 1971
“We deplore the practice of locating plants in foreign countries solely to take advantage of low wage rates in order to produce goods primarily for sale in the United States. We will take action to discourage such unfair and disruptive practices that result in the loss of American jobs.” 1972 Republican Party Platform
“And you must remember the Chinese are not only purposeful and intelligent, they also have a large pool of cheap labor. So they should be able to find ways to get trading capital.” David Rockefeller, 1973
John Rees noted that David Rockefeller “views Red China as a huge pool of cheap docile and rigidly disciplined labor which can be exploited for huge profits. And there can be little doubt that those who put profit before patriotism when it comes to building up a deadly enemy of every freedom in this country will be seeking ways of taking jobs away from Americans by establishing plants in Red China where they can employ slave labor.” John Rees, as quoted by Congressman Larry McDonald (D-GA) Congressional Record February 5, 1979
As of February 1979, the number of maquiladora plants totaled 450 and employed 80,000 Mexican workers. General Electric, Litton, RCA, General Motors, and Rockwell International all opened maquiladora plants. In September 1978, General Motors opened a maquiladora plant that employed 800 workers. RCA established a maquiladora plant that employed 6,000 workers. The wages of Mexican workers averaged $1 an hour, while managers earned only $328 per week. An advertisement in an El Paso business publication highlighted the short-term, win-win benefits of cheap labor for US-based multinationals when it exhorted: “Have your cake and eat it too. Live in the US. Pay your employees $6.64 a day.” The advertisement noted that Mexicans worked 48 hour weeks and that employee absenteeism and turnover was 2%. General Electric opened a maquiladora plant which employed 15,000 workers. Other American firms also were attracted by the lax environmental and safety regulations in Mexico. New York Times February 22, 1979
“Have your cake and eat it too. Live in the US. Pay your employees $6.64 a day.” Advertisement in an El Paso, TX business publication which highlighted the short-term, win-win benefits of cheap labor for American multinational corporations
“I don’t think it’s the responsibility of the taxpayers to subsidize an effort to move jobs to Mexico. People in my district are losing jobs because of this program. We shouldn’t be using their tax dollars to promote it.” Representative Ralph Regula (R-OH), 1986
Detroit factories
“In light of the nearly 2 million manufacturing jobs that have been lost in the United States since 1981, it seems to me we should be more interested in attracting job-producing investment in this country…The Department of Commerce should be concentrating on how the $2 billion invested in Mexican plants could have been used to upgrade plants and production processes in this country.” Representative Frank McCloskey (D-Indiana), 1986
“Simply put, there are many U.S. companies that are finding it difficult to compete…These companies are seeking some relief from labor costs, so they can hold onto their profits and/or even expand at some point. Do you want a piece of something or nothing?” E. A. Gibbs, chairman of MBank Brownsville in Brownsville, TX, 1986
“It would be a nice little addition to our economy…The labor force down there is increasingly attractive.” Tampa Bay-area businessman Eric “Rip” Weiler, 1987, commenting in respect to the benefits of the maquiladoras in Mexico for American businesses.
“The only way a company here can compete is to cut its costs…If a company can go offshore and pick up savings in labor costs, it can become more competitive. If it becomes competitive enough, it will expand.” Cliff Topping, executive director of the International Trade Council, 1987
As of January 1988, the International Trade Commission (ITC) reported that low Mexican wages were the primary reason why American firms moved manufacturing operations to Mexico. Journal of Commerce January 29, 1988
The report noted that employment at the maquiladoras rose from 120,000 in 1981 to 300,000 in 1986. The wages at these plants dropped from $1.50 to 46 cents per hour. Journal of Commerce January 29, 1988
Mexican wages were cheaper than American rates because of a governmental devaluation of the peso in 1982. Journal of Commerce January 29, 1988
As of May 1988, the average cost of a Mexican worker was $2,700 per year, while the average wages of an American worker in right-to-work southern states $16,500. American exports of parts to maquiladora plants in Mexico totaled $4 billion in 1987. The Toronto Star May 22, 1988
As of November 1986, 58,700 American workers in Indiana lost their manufacturing jobs since 1980. The Associated Press October 28, 1986
As of December 1986, General Motors employed 24,000 workers in plants in northern Mexico. New York Times December 29, 1986
The Commerce Department estimated that the value added by the maquiladoras totaled $1.3 billion. They employed 250,000 Mexican workers. New York Times December 29, 1986
In 1975, the number of maquiladoras totaled 454 and grew to 1,000 in 1986. New York Times December 29, 1986
Melissa Coyle, director of the Commerce Department’s Mexico trade division, noted that the US government promoted maquiladoras since the late 1970s as a means of assisting American multinationals in slashing labor costs in order to compete with foreign companies. The Associated Press October 2, 1986
In October 1986, the Commerce Department sponsored a trade fair in Mexico called Expo Maquila. The Commerce Department mailed out 38,000 invitations to American firms. New York Times December 29, 1986
The Commerce Department invited 120,000 American companies to attend Expo Maquila 1986 to promote the maquiladora zones for US multinationals. The Associated Press October 2, 1986
Alexander Good, director general of the Commerce Department’s U.S. and Foreign Commercial Service noted that “Maquiladoras have received bipartisan support for over 20 years. These programs in Mexico have often generated net gains in U.S. jobs among suppliers of assembly parts and components while enhancing the competitiveness of U.S. producers who otherwise would have been forced to move their entire operation offshore.” The Washington Post November 20, 1986
In the face of predatory South Korean trade practices, President George W. Bush’s Under Secretary of Commerce for International Trade Frank Lavin recommended to entrepreneur Igor Khandros of the injured American software company FormFactor: “Have you considered moving your operations to Korea or maybe Singapore?” Former Reagan-era USTR official Clyde Prestowitz accompanied Khandros to petition Lavin to assist FormFactor in retaining its American operations through the neutralization of South Korean predatory trade practices. According to Prestowitz’s account “Igor nearly fell out of his chair. We didn’t bother to tell Lavin that we were talking to him in an effort to avoid moving the company, jobs, and technology out of the United States…He wouldn’t have understood our values and intentions.” The American Conservative December 2, 2010
During the first five years of the NAFTA trade regime, “maquiladora” employment rose by 86%. William C. Gruben, study for the Dallas Federal Reserve Bank, July 2001
After 1994, employment at the maquiladoras grew 11 percent per year. By 2000, the maquiladoras in Mexico employed 1.3 million workers at 2,000 factories. Information quoted from The Daily Texan, February 11, 2004
The CEO of the US Chamber of Commerce Tom Donohue remarked at the Commonwealth Club of California that the outsourcing of highly paid technology jobs to India, Red China, and the Russian Federation would save money for American companies. Information quoted from The Economic Times July 3, 2004
“Outsourcing is just a new way of doing international trade, probably a plus for the economy in the long run.” Gregory Mankiw, Chairman, White House Council of Economic Advisers, 2004
“There is no job that is America’s God-given right anymore. We have to compete for jobs.” Carly Fiorina, CEO for the Hewlett-Packard Company, January 2004
“If you’re up against global competition, you go wherever you can find core competency. Sometimes if you’re going to really compete, (outsourcing) will happen. But that doesn’t mean you don’t constantly do everything you can to invest in your own people and involve them in the decisions. Outsourcing is inevitable, and I don’t think it’s necessarily treating people like things.” Stephen Covey, 2004
“In the long run, outsourcing is another form of trade that benefits the U.S. economy by giving us cheaper ways to do things.” Janet Yellen, current Federal Reserve Board Chairwoman, February 2004
“Outsourcing and globalization of manufacturing allows companies to reduce costs, benefits consumers with lower cost goods and services, causes economic expansion that reduces unemployment, and increases productivity and job creation.” Larry Elder, 2005
“Outsourcing will continue…There is no way to legislate against reality…We are not in favor of putting up fences…There are people who feel left behind and (that) might stir up negative feelings against India because they do not understand the economic benefits of outsourcing.” Hillary Clinton, 2005
“Outsourcing is a reflection of a bad economic environment domestically. If you fix that, you fix outsourcing.” Congressman Ron Paul (D-TX), 2007
The Obama $787 billion stimulus program provided federal contracts and dollars to firms which outsourced jobs to foreign nations. In January 2010, the North Carolina-based LED manufacturer Cree Inc. received $39 million from a stimulus-funded tax credit program. In November 2009, the same company constructed a factory in Red China. Information quoted from The New American July 11, 2012
Cree Chairman and CEO Chuck Swoboda stated: “Cree management never runs this company as a U.S. company. We consider Cree to be a global company with local wisdoms.” Information quoted from The New American July 11, 2012
Eurus Energy America, a subsidiary for a Japanese firm, received $91 million from the stimulus program to construct a wind farm in Bull Creek Texas. The turbines for the wind-controlled power plants were manufactured by Mitsubishi in Japan. Information quoted from The New American July 11, 2012
Sempra Energy received a $337 million loan guarantee from the stimulus to purchased solar panels from a Red Chinese corporation Suntech. Information quoted from The New American July 11, 2012
Senator Charles Schumer (D-NY) remarked “In all due respect I remind the secretary (of Energy) there is a four-letter word associated with the stimulus — J-O-B-S…Very few jobs here, lots of jobs in China. That is not what I intended or any other legislator who voted for the stimulus intended.” Information quoted from The New American July 11, 2012
“I’m proud of it…This is a part of American business, part of any business. Outsourcing is the procurement of products and services to help your business run. People do that all day.’” Senator Dave Perdue (R-GA), former CEO of Pillotex
“Yeah, I spent most of my career doing that. Kurt Salmon Associates, some of my experience there was helping footwear companies develop the ability to import shoes from Asia, specifically Taiwan, Korea, China, Indonesia, Malaysia. Later with Haggar Corporation—sorry, with Gitano and Sara Lee, having lived there, I lived in Singapore with Gitano and in Hong Kong with Sara Lee, sourcing was my primary responsibility in both of those locations. I dealt with companies from Japan westward all the way to Kenya and Lesotho in Africa, Dubai, Pakistan, Bangladesh, India, Thailand, Malaysia, Myanmar, Indonesia, Vietnam, all points west of Japan.” US Senator Dave Perdue (R-GA), former CEO of Pillotex, reflecting on his professional experience outsourcing American jobs and capital
In 2014, a survey was conducted of ASEAN countries, where “Vietnam’s strengths include positive sentiments toward the US (66 percent), the availability of low cost labour (66 percent), and the level of personal security (61 percent).”
“…in terms of Tesla[1] deciding to manufacture cars in China, to be honest, it’s irrelevant where cars are made and to the extent that cars can be outsourced or manufacturing can be outsourced to save American companies money, that’s a good thing. The money saved is reinvested back here in America in new wealth creation in a free economy.” Capitalist Pig investment fund founder and Fox News commentator Jonathan Hoenig, 2014
NIKE factory in Red China
sweatshop plant in Red China
However, average Americans suffered tremendously from such economic arrangements. Towns and whole cities became desolate, post-industrial wastelands. Citizens who were unemployed or underemployed as a result of globalization became addicted to welfare, dangerous drugs, crime, and a sense of general despair.
[1] Tesla is an up-and-coming American automaker which produces and sells luxury electric cars.
NEXT: Part 5 of the series: The Manifesto of Constitutional American Nationalism – Globalism
Nevin Gussack is a professional librarian, political commentator, and writer. His works appeared on the webpages of the Center for Intelligence Studies, Accuracy in Media, Economy in Crisis, and JRNyquist.com. He also appeared on America’s Survival Roku television program, WEI’s Make the Call radio program, and the veteran broadcaster Chuck Harder’s radio program For the People. Nevin received a double major from the State University of New York at Albany in History and Political Science. Since that time, he also received two Master’s Degrees in Social Studies Education from Florida Atlantic University and Library and Information Science from the University of South Florida. Nevin is the Director of Bear Witness Central in the West Palm Beach area.
