The maquiladoras come home to roost

On Dec. 19, six officials in Warren County, Kentucky, passed an innovative but contentious law: a local right-to-work ordinance. The law prohibits unions from requiring representation fees from workers covered by union contracts, an exemption previously granted only by state governments. By Jan. 13, four other Kentucky counties passed similar laws — the legality of which was immediately challenged by nine labor unions in federal court.

On Jan. 27, the idea grew legs in Illinois, where newly elected Gov. Bruce Rauner debuted a similar plan for his state, supporting “employee empowerment zones” or local right-to-work zones.

“I’m not advocating Illinois’ becoming a right-to-work state,” he said, “but I do advocate [for] local governments being allowed to decide whether they’re right-to-work zones.”

An obscure adjustment to how union contracts are written, the laws may seem innocuous. But they are a hallmark of American industry’s prowess in seeking competitiveness at the expense of its employees. Proposed by the conservative Heritage Foundation, backed by the local government arm of the American Legislative Exchange Council and litigated pro bono by Yessin Associates, which runs employer-side campaigns in union-representation elections, the laws are part of a national campaign to bring investment to economically depressed areas by lowering the cost of labor. Many of the areas are, of course, depressed after decades of exporting once high-wage manufacturing jobs to lower cost areas.

Because they are alleged to violate the federal National Labor Relations Act, the future of these laws will depend on their plodding journey through the federal courts. Yet their significance goes well beyond constitutional law. They offer but one example of a larger trend of development strategy pursued around the globe that uses the deregulation of labor standards to attract investment. This has serious implications for both federal policy and the livelihoods of future generations.

Such development strategies work on the premise that deregulating regions — in this case by circumventing National Labor Relations Act guidelines — attracts investment by lowering the cost of doing business.

The history of 20th century free trade shows that such programs work for investors, with the explosion of export platforms in Latin America and Asia over the past four decades. Since 1964, when the United States government changed tariff laws to allow imports manufactured abroad with American-made components, foreign governments desperate for capital investment have responded by establishing export processing zones — regions with exemptions from national tax, corporate and environmental laws. Mexico, the most glaring example, was one of the first, and U.S. manufacturers frustrated with state bureaucracies and low profits immediately began moving south. Thus began the maquila industries along our southern border.

Thirty years later, the factories attracted by this development strategy tower over open sewers and sprawling landfills that the American Medical Association describes as “a virtual cesspool and breeding ground of infectious diseases.” Of course, their business advantages lay not only in the lower costs of reduced environmental and health standards but also in the cheapness of Mexican labor, whose low wages were preserved by the de facto union suppression afforded companies that moved across the border.

The U.S. House of Representatives learned of the permissiveness of the anti-union regime in 1993 when Alma Molina, a worker in the electrical parts industry of Juárez, gave testimony on working conditions in the export processing zones. “We worked with dangerous chemicals, including phenol and epoxy resin, but no masks were provided,” she said, before explaining that a group of her co-workers at a Honeywell plant began meeting to try to improve working conditions. “The personnel manager told me I was being fired because I was trying to organize a union.” After she and nine others were terminated, Molina found a job at a General Electric plant. But in just a week, she said, “I was called into the personnel office and shown a list with my name on it … The personnel man said that he did not know why my name was on the list but that he would have to fire me anyway.”

Reporter Peter Lennon visited one such zone in 1992 to investigate a spate of mysterious infant deformities. He wrote in The Guardian that in Matamoros, workers “sleep, eat and work in contaminated surroundings; children paddle in industrial waste with barely a stirring of any environmental law. More than 40 anencephalic (brainless) babies have been born in the past two and a half years to mothers who work in the maquiladoras … Just across the river in Brownsville, Texas, there have been 30 cases officially noted. They are believed to be the result of toxic pollution.”

The investment sought with the creation of the export processing zones succeeded in creating hundreds of thousands of Mexican jobs. But this type of development came at the tremendous cost of deeply transforming Mexican society. In 2001, Manuel Arroyo Galván, a Juárez University sociologist, summed up the result, saying, “Everything indicates that working [here] does not guarantee a better quality of life.”

Similar zones have been established in developing countries around the globe — from the Philippines, Bangladesh and Pakistan to Zimbabwe, Kenya and Namibia — and where they sprout, manufacturing business goes. 

Within the United States, a similar pattern has been playing out in the past half-century between old and new manufacturing centers — brownfields and greenfields, Rust Belt states such as Michigan, Indiana and Pennsylvania and Sun Belt states such as Arizona, Texas and Mississippi.

What began as a strategy for less industrialized Southern states to keep unions out, to keep the cost of living down and to attract Northern investment has expanded into widespread opposition to national standards in other categories, such as taxes, public services and the environment.

One of the most vocal advocates of the freewheeling, business-led American future is former Texas Gov. Rick Perry. “When you grow tired of Maryland taxes squeezing every dime out of your business,” he said in one of several radio ads across the country in 2013, “think Texas.” The campaign spanned at least six states and was capped with the statement that the federal government should not have the power to set a national minimum wage.

Businesses relocating to Texas have been part of the story of the state’s economic growth in the past decade, but while Texas may lead the nation in job growth, it is 45th in per pupil funding for public education and first in minimum-wage employment. Similarly, advocates of devolving regulatory powers to the states point to the growth in hydraulic fracturing, which is exempt from the Safe Water Drinking Act, as proof that their strategy works. Yet they’re not left in the communities damaged by the drilling waste.

Conservatives and business leaders are correct in arguing that there is endless potential for government bureaucracies to streamline their operations, but they are wrong to seek regulatory reform only through exemptions from national standards or their wholesale repeal. We don’t let states set minimum wages lower than federal law, though it would surely attract investment, just as we don’t exempt states from providing free public education, though lowering property taxes would, in a narrow, financial sense, benefit property owners.

Yet elected leaders in hard-pressed communities today advocate for lower wages — such as at the unionized Corvette plant in Bowling Green, Kentucky — in the form of weaker unions. As they deliberate strategies for providing for their constituents, they should consider the wider implications of lowering wages, defunding public services and repealing environmental regulations as a form of economic development.

When it comes to attracting capital investment, do we really want our manufacturing towns to compete with Juárez and Matamoros? As evidence from the developing world shows, lowering the bar for employees certainly works for investors, but it’s not the only path to development. Alternative sources of investment can and have appeared, from midcentury Federal Housing Administration loans that built our suburbs to the massive public works programs of today at Fort Hood, Texas, and Fort Bragg, North Carolina.

Public investment depends on public revenue — taxes — without which communities are left to compete for private capital on investors’ terms. And of course, community leaders such as those in Warren County are not interested in public investment and higher taxes. Their goal is to attract business investment, even if that means cutting their neighbors’ paychecks to do it. Those who keep electing them should ask themselves if that’s what they want too.