NAFTA at 13: still not working for workers

Fred Rosen writes for Mexico’s El Universal, Oct. 15:

NAFTA: An interim assessment

Because the North American Free Trade Agreement (NAFTA) is a prototype for Washington┬┤s larger plans for the Americas, the nearly 13-year-old trade pact among the United States, Mexico and Canada, has been subject to continual interim assessments and analyses.

Changes in the quality of life under NAFTA are regularly invoked by proponents as well as opponents of broader “right-to-do-business” proposals for the Americas.

As is almost always the case, interim assessments of NAFTA vary with the interests of the assessor; the effects of the agreement, after all, have been very good to some citizens of the North American region, and extremely problematic for many others.

NAFTA has succeeded, for example, in making employment more precarious in all three countries, thereby lowering labor┬┤s bargaining power and increasing profitability in many sectors of an increasingly integrated North American economy.

For labor advocates this growing precariousness is an indication of failure.

For many advocates of market-led growth, it is simply a confirmation of the agreement┬┤s intended disciplinary consequences.

Changing conditions

A new report on NAFTA┬┤s labor-market effects provides some interesting detail about this growing precariousness.

The report, released by the labor-oriented Economic Policy Institute (EPI), a think tank based in Washington, is called “Revisiting NAFTA: Still not Working for North America┬┤s Workers.”

It is available on the EPI website: www.epi.org/content.cfm/bp173, and should be read by those concerned with the country┬┤s political turmoil – whatever their political sympathies.

The report┬┤s three chapters detail changing labor conditions in each of the three NAFTA countries.

The Mexico chapter of the report, written by economist Carlos Salas, makes for instructive reading. Here are some highlights:

From mid-2000 to mid-2004, about 2.8 million jobs were created in Mexico. Four percent were employer positions, 54 percent were wage-earning jobs, and 43 percent were positions of self- employment.

Of the new wage-earning positions generated over that period, only 37 percent carried full social security benefits.

Twenty-three percent carried no social benefits whatsoever.

Over that same period, 65 percent of all new jobs (including management and self-employment) were in micro-businesses (economic entities with up to five employees), which are characterized by low wages, low productivity and low levels of technology.

Labor force grows

The labor force is growing much faster than employment in larger, better-paying companies, so self-employment and employment in low-wage micro-businesses – along with emigration – have provided the only job opportunities for large numbers of workers.

In this way, reports Salas, “the micro-business sector acts as a full-employment buffer, absorbing and retaining a large share of workers as GDP growth slows and accelerates.”

The proportion of the population devoted to agriculture has been cut in half under the weight of U.S. agricultural imports. We might add that the bulk of the displaced are now working in Chicago supermarkets and wringing the necks of Georgia chickens.

Despite the deleterious effects on labor of cheap imports, NAFTA created the expectation that a rapidly growing export sector would create the country┬┤s best- paying jobs, promote economic growth through the transfer from abroad of productive technologies, and lift the country out of Third World status.

Salas┬┤ analysis of the export sector suggests that NAFTA, at least from Mexico┬┤s point of view, may be failing on its own terms.

Prosperity absent

Over the first decade of NAFTA┬┤s existence, Mexico┬┤s exports have grown at a healthy average of 12 percent a year.

However, there are two reasons why this export growth has not been creating general prosperity.

First, over this same period, the proportion of maquiladora assembly exports (primarily metal and equipment products, electronics and textiles, as well as steel, paper and printing, clothing, and plastic products) as a percentage of manufactured exports has grown even faster than the growth of total exports.

The growth of the maquila sector is a problem because under the terms of the U.S.-Mexico maqui- ladora agreement (signed long before NAFTA went into effect), products manufactured for export are to be assembled almost entirely from imported intermediate goods.

This pattern has gradually crept into the manufacturing sector as a whole: export growth (of final products) requires simultaneous import growth (of intermediate goods).

This pattern has destroyed domestic productive chains.

“Consequently,” writes Salas, “when the economy grows, so does the trade deficit.”

FDI Diminishing

The second major problem in the export sector is that the flow of foreign direct investment (FDI) toward manufacturing has continued to diminish under NAFTA and has been directed increasingly toward services.

In 1980, 80 percent of FDI went toward manufacturing, while in 2004 this percentage had fallen to 52 percent.

Unfortunately for the Mexican economy, foreign investment in services (supermarket chains, for example) rarely results in technology transfer and consequent economic growth.

NAFTA, the EFI study shows, has not been kind to working people.

The jury remains out as to whether it can promote real economic growth.

See our last posts on NAFTA’s impacts on Mexico’s peasantry, and its links to hemispheric militarization. See also our last post on Mexico.