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Maquiladora Market Economics By: Lorenzo Dee Belveal Provided we can start with general agreement on the idea that salary rates and selling prices should reflect real economic functions, rather than just social distortions and geographic displacements, it should be possible for us to shed some light on the confusing and long-standing Honduras maquiladora argument. Such clarification is as badly needed as it is long overdue. I shall begin by simplistically, albeit accurately, stating that all the maquiladora companies are looking for, is an unfair advantage in the marketplace. Their lever for obtaining this advantage is a glaring, gross and unarguable social disparity, based on a geographic anomaly, rather than economics. Honduras is one of the poorest nations on this planet and, following hurricane "Mitch", quite likely the poorest nation in the western hemisphere. What the maquiladora program comes down to is an effort to "buy" (or acquire) merchandise in the low-low priced market of Honduras, in which national poverty and predictably cheap labor allows production of extremely cheap products. The other end of the maquiladora’s program calls for selling these cheap products into the world’s highest-priced consumer markets: In the United States, Canada, and Western Europe. The effect of this program (acquire at the lowest possible price, and sell at the highest available price) results in an unconscionably high return to the manufacturer, as well as the in-stream participants (distributor, jobber, wholesaler, retailer). By selling in the high-priced markets, prevailing "local" pricing levels, based on "local" manufacturing costs, establish an "umbrella" that protects the maquiladora's "foreign" (low-priced) advantage. The orthodox theory of economic pricing is based on verticality, in a discretely coherent market. "Coherent" is the key word here. Henry Ford demonstrated market coherency, when he decided to pay his factory workers what amounted to a "minimum wage" of five dollars a day, when two dollars a day generally represented an excellent wage for day labor in most American factories. Mr. Ford justified his decision (in the face of great outrage and even organized resistance on the part of other industrial employers) by saying that his dream of a nation on wheels could not be realized unless his own employees could afford to buy the cars they were building. This is economic coherency. It involves "verticalized" production, distributon and merchandising in an economic milieu in which essentially the same socio-economic rules and objectives apply across the full work force spectrum. And in which everyone is entitled to a "decent" and "livable" standard of existence. In other words, we are talking about a "fair" economy, and one in which excessive exploitation of one "class" by another, is not a major characteristic of the workplace. The United States fought a bloody internecine "civil" war, because (through the device of slavery) the south sought the same kind of unfair economic advantage, that the maquiladoras now seek. The difference is one of degree, rather than kind. The lever of national poverty in Honduras, is being used to "unhook" the real costs of (low priced) acquisition (in Honduras), from the applicable price levels that apply in the geographically removed (and high priced) selling locales. . The means of quick and economical transport allows the "geographical profiteers" to argue their syllogistic case, that it really makes no difference, that it is "non-economic" geographic distance, that disconnects acquisition and selling prices. It is sheer distance that produces the greatly exaggerated price-value distortion present in the maquiladora's market equation. Hence, companies like Dixie Lee, WalMart and Nike, are able to insist they are just meeting their capitalistic objective of "maximizing profits", when they "buy" at the lowest price available in Honduras, India and Indonesia, and sell at the highest prices obtainable in San Francisco, Chicago and Paris. Theirs is, at worst, a diabolical argument, tailored to justify exploitation of their socially and economically disadvantaged offshore employees. Their case, even with the best possible face on it, will not bear up under close social, humanistic, or economic scrutiny. Such gross inequity, however it might be installed or rationalized, is beyond the pale of acceptable market behavior. The loudest protagonists for maintaining the socio-economic status quo, choose to ignore the reality that economic decisions - even on the part of people who have no understanding or appreciation for the significance of what they are doing - do produce results. For example, we have recently seen Wire Service stories that advise us some 600,000 Hondurans will go to the United States this year. Virtually all of them will make their move illegally. This is a lot of people, but there is every reason to think that the actual number will be much larger - and more daunting. Someone in the Hondo1 List recently asked the hypothetical question, "Why doesn't the union organizer (epithet) Kernaghan, stay home and solve all of the problems we have in the States?" (Instead of coming to Honduras to organize maquiladora plants and cause problems for employers?) I label this question "hypothetical", because I can't imagine there are very many people in either Honduras or the United States who do not know (or sense) the answer. The irresistible magnet that draws Hondurans, Mexicans, Haitians, Guatemalteques, and dozens of other nationalities to the United States is purely economic. It's the vast difference between the Lempira equivalent of five dollars a day, and a minimum wage of more than five dollars per hour that attracts them. And, needless to say, it is irresistible. I suggest the apologists for the status quo in the Honduras maquiladora factories, quit talking about how much better it is in the maquiladoras now, than it was five years ago, and begin talking about how much better it is north of the Rio Grande, than it is south of the Rio Grande - today. After all, this is why a minimum of 600,000 Hondurans have already indicated their intentions to head north this year. While you are at it, cast this disparity in a personal frame of reference. Tell us which side of the Rio Grande you - personally - would come down on, if you faced the same grim alternatives. Economics, like water, seeks a common level. This equalization can be caused by "internationalizing" and strategically locating acquisition and disposition functions. Or it can be accomplished by moving vast numbers of people out of economically deprived areas and into economically favored areas. Or it can be engineered by "transplanting" production rules and wages across international boundaries, and fostering a measure of equity in the wages received by one workman in Charleston, South Carolina, and another workman in San Pedro Sula, Honduras, when both are doing the same work. Especially when they are operating the same kind of machines. Punching the same time-clock. Hoping to eat three times a day. Wanting to have a decent existence for themselves and their families. The geographic distortion of wage-pricing between San Pedro Sula and Charleston doesn't justify a "windfall" profit for "international" entrepreneurs who can afford to capitalize on the locational anomaly, and their seriously disadvantaged employees - who can't. "Unfair competition" seems to be well understood in a local setting. It is less apparent in the international setting. Globalization of industrial production has resulted in a great proliferation of "unfair competition", but on an international scale. Now that annual sales are in billions, rather than millions, and the entire planet is the expanded competitive arena within which competing firms seek to maximize their commercial opportunities, the threats and instances of exploitation of largely defenseless employees have increased exponentially. The old "robber barons" used to blackmail their employees with the threat, "If you unionize, we will just close this plant - and you won't have any jobs to come to." And they did it! Now the threat is geographically different, but morally no less depraved: "If you unionize (and reduce or remove our unfair economic advantage) we will just move this plant from Honduras, to Ghana, Indonesia, or Paraguay. The bottom-line, ladies and gentlemen: WE DON"T NEED YOU. You are as replaceable as so many ball-bearings." There is a way to solve this great inequality, and an increasing number of insightful people are talking about it all the time. It involves placing an "equalizing" import tariff on all "unfairly produced" merchandise, intended for distribution in the American market.. One way a manufacturer could avoid the impost on his products might be by paying "parity" wages to his offshore employees. "Parity wages" does not mean that the respective employers would have to pay employees in Charleston and San Pedro Sula the same hourly or daily rates. But rather that, adjusted for the differing costs of living, wages in both locations would have to enable employees in both locations to live decently,support his or her family, educate their children, etc. This could accomplish a couple of highly beneficial results: First, it would level the playing field, to the extent of enabling the Charleston manufacturer to more effectively compete with his San Pedro Sula counterpart, in their mutual selling market. Second: It would enable the Honduran factory workers to stay home, rather than head north to the Land of High Wages. This, because their own local wages would reflect a relatively higher measure of equivalency with thoseof their "Gringo" counterparts. The dollar differential would still likely be appreciable, but the economic magnet would not be so strong. Beyond this, wage "parity" would make functional customers out of the foreign workers, which they have never been up to now. By paying them in line with the "value-added" doctrine, rather than at the cheapest rate(s) the deprived and poverty-stricken Honduras labor market will support, they will be able to also buy the products they are producing for the highest-priced markets on this earth. Most importantly, by installing company-wide salary "parity", the workmen will stay at home. This will benefit everyone. It is neither sensible, necessary, nor economic to require a man or woman to run the gauntlet of illegal immigration, in order to avail him- or herself of fair employment treatment, that should be as equally available in the foreign location, as it is in the Home Office city. =========================== Lorenzo Dee Belveal, Author
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