CAPITAL: Electrical Equipment: Foreign Profit Circuit

September 25, 2007

Since the turn of the century, as we saw in the
history of Mexico's electrical power industry,
monopolies like General Electric and Westing-
house - which together control over half the
U.S. market for equipment used by electrical
utilities - have spread their operations across the
globe in an effort to capture growing markets for
electrical equipment and to profit from the low
wages of foreign labor.
The attractiveness of foreign operations is
indicated by statistics such as these: between
1960 and 1970, output by foreign affiliates of
U.S. electrical equipment companies jumped 200
percent, while sales in their U.S.-based plants
increased by only 116 percent.' For General
Electric, which leads the industry with annual
sales of $13 billion, international operations
accounted for at least 20 percent of total sales
and 28 percent of total profits by 1973.2
Likewise, while employment in the domestic end
of the electrical equipment industry increased by
only 50 percent in the 1960s, foreign affiliates
doubled their workforce to the point where in
1970, workers in foreign plants accounted for
one-third of the total workforce of U.S.-based
electrical equipment companies. 3 This far greater
rate of growth of the electrical equipment
industry in countries like West Germany, Brazil
and Mexico can be seen in Table 3.
In developing nations like Mexico, the trans-
national companies have come to rely on the
state to assure them of both markets and cheap
labor, through massive government spending on
electrical facilities, as we have seen in the
previous article, and through savage repression of
the workforce, as we will see in the next.
Although this reliance is ongoing, its true nature
is most clearly revealed during times of world
economic crisis, when the transnational com-
panies expect third world states to play the role
of shock absorbers.
During the 1975 recession, for example, U.S.
electric utilities stopped expanding, while U.S.
workers, hit by inflation and unemployment,
Sept./Oct. 1977 13
-- - ------- -14
NACLA Report
The Electrical Equipment Industry:
Wages and Employment in Selected Countries
Production Total Total
Total Workers Wages Sales
(1,000's) (1,000's) (Mln. $) (Mln. $)
1966 1,811 1,319 11,988 40,843 3.03 .18
1970 1,840 1,237 14,756 48,137 3.82 .17
1966 868 599 3,299 8,303 1.26 .21
1970 863 559 3,769 8,961 1.49 .21
West Germany
1966 965 678 3,481 8,200 1.66 .25
1970 1,095 774 6,028 13,888 2.59 .26
1966 95 73 109 728 .59 .095
1970 107 84 151 1,014 .68 .091
1966 76 60 98 574 .36 .082
1970 110 86 154 919 .42 .088
Source: U.S. Senate Committee on Finance, Implications of Multinational Firms for World Trade
and Investment and for U.S. Trade and Labor, February 1973.
stopped spending. The market for both generat-
ing equipment and household appliances dried
up in the U.S., causing electrical equipment
companies to take a drop in profits. G.E.'s profits
that year dropped from $608 million in 1974 to
$580 million. In Mexico, however, where the
overall effects of the recession were far more
devastating than in the United States, the
Mexican subsidiary of GE increased its profits in
the same one-year period from $6.8 million to
$7.5 million. 4
This was due largely to the intervention of the
Mexican state. The Mexican electrical power
commission (CFE) went further into debt to
international capital in order to continue financ-
ing the expansion of electrical facilities. At the
same time, the government established a program
(FONACOT) to provide very low interest loans
to workers which were tied specifically to the
purchase of consumer goods. The principal
beneficiaries of this program were the trans-
nationals who saw their sales of household
appliances bolstered in an otherwise shaky
market. The state also came to GE's aid by using
police to break a militant strike at the company's
main plant in July, 1974.
With these developments as a backdrop, we
now turn to an examination of the growth of the
electrical equipment industry in Mexico and to a
discussion of exactly what role the foreign
companies play in the country's economy
Though U.S. electrical equipment manufac-
turers moved into Mexico even before World War
II, the intensity of expansion into Mexico by
both U.S. and European companies greatly
increased in the 1960s. Between 1961 and 1970,
14 NACLA ReportSept/Oct. 1977
foreign investments in the electrical equipment
industry in Mexico more than tripled - from $62
million to $215 millions - with the most rapid
growth being in the late '60s, reflecting the
industry's renewed emphasis on Latin America
and Western Europe in those years.
By 1970, of the 136 companies with foreign
participation in Mexico's electrical equipment
sector, 64 were completely foreign-owned and
another 27 had more than half foreign owner-
ship. The transnational companies accounted for
nearly 82 percent of the total shares of those
electrical equipment manufacturers ranking in
the top 290 corporations in Mexico. 6
The increasingly colossal dimensions of for-
eign investment in Mexico's electrical manufac-
turing sector parallels foreign penetration in
general throughout the economy. In 1970, 45
percent of the shares of the 290 largest corpora-
tions in Mexico was controlled by transnational
companies, with the remainder divided between
national private capital (42 percent) and state
enterprises (13 percent). 7
An ever greater portion of Mexico's industrial
proletariat, likewise, finds itself employed in the
shops of the foreign companies. The percentage
of the industrial workforce employed by the
transnationals increased from eight percent in
1963 to over 16 percent in 1973. Total
employment by the transnationals in Mexico
doubled in the 1960s to 420,000, while indus-
trial employment by the transnationals nearly
tripled to 310,000 - indicating the focus on
industrial investments. For the electrical equip-
ment industry, the number of workers employed
by foreign companies also tripled in the '60s to
The increasing integration of the Mexican
economy into the international capitalist system
of the transnational corporations portends the
nature of future economic development and
consequently of political struggle in Mexico.
Apologists of imperialist penetration of Mexico
argue that the transnationals contribute to the
economic development of the nation by provid- ing necessary capital investments, increasing
exports, creating employment opportunities, etc. Their arguments, however, fail to acknowl-
edge the enormous price paid by the Mexican
people for the "contribution" of the transna-
tionals: the millions of dollars of profits annually
drained from the country and the severe eco-
nomic distortions caused by the domination of
foreign monopolies. Following is a brief look at
four factors of imperialist domination in Mexico,
using the electrical equipment industry as an
illustration: (1) the export of profits, (2) the
trade deficit, (3) de-nationalization of the eco-
nomy, and (4) monopolization. Other factors
relating to labor are examined in Part II of this
Between 1961 and 1970, new direct foreign
investment in Mexico totaled $1.1 billion, while
total profit remittances plus payments abroad on
interest, royalties, patents, etc. totaled $1.8 billion - a drain of $700 million in only ten
* Officially declared profits are in reality only a small portion of the capital transferred out of the country by the foreign companies. Payments for licensing and technical assistance, over-deprecia- tion of investments, and artifically priced goods transferred between parent company and subsid- iaries are all channels for "unofficial" profits. Payments for licensing and technical assistance (i.e., "technology transfer") are, in fact, becom- ing the main channel for profits flowing out of Mexico. While total remitted profits tripled between 1960 and 1970, payments on interest, royalties, patents, etc. nearly quadrupled, so that now such payments are nearly twice as large as officially declared profits remitted to the home country.1' 214 transnational companies in Mexi- co surveyed by the Stanford Research Institute paid fees of $65 million to theirparent company in 1974 for some form of technical assistance, patent or license.'' Another researcher estimates that when the factor of over-depreciation of investments is added to other forms of profit-taking, the total current return on new foreign investments exceeds 46 percent annually." And yet another factor to consider in determining actual profits of foreign investment is the over-charging by the transnational parent firms for machinery, raw materials and other goods transferred to their subsidiaries. One study estimates that it would be sufficient for the average "over-charge" on such inter-company trade to be 25 percent in order for the capital transfers to the parent company through this mechanism to be greater than the actual profits remitted abroad by the foreign companies. And given known corporate prac- tices, 25 percent is a low figure. 1 3
Sept./Oct. 1977 15NACLA Report
Percentage Participation of the
Transnational Companies, Private
National Companies & State Companies
in Mexico's Industrial Production, 1970.
(selected industries)
Industrial Sector
Paper & cellulose
Rubber products
Petroleum products & coke
Basic metals
Non-electrical machinery
Electrical machinery
Transportation equipment
TNCs' Priv. State 2
21.5 74.8 3.7
30.0 69.8 0.2
32.9 61.9 5.2
63.9 31.4 4.7
50.7 43.2 6.1
48.7 46.7 4.6
46.6 40.6 12.8
52.1 47.4 0.5
50.1 49.9
64.0 21.1 14.9
34.9 60.2 4.9
1. Based on a sample of 651 companies and
is an underestimation of actual foreign
2. Includes companies in which the state
holds more than 49 percent of the stocks.
Source: F. Fajnzylber & T. Martinez Tarrago,
Las Empresas Transnacionales
While new foreign investments in the electri-
cal equipment industry in Mexico reached $110
million in 1970, profit remittances and other
payments abroad topped $186 million - a
capital drain in one year, in one industry, of
nearly $80 million.' 4
These figures illustrate the intensity with
which foreign companies are repatriating the
surplus value created by Mexican workers - that
is, the value added to commodities in the
production process by the workers' labor,
beyond what they are paid in wages. Under
capitalism, this surplus value is appropriated by
the capitalist. Thus the wealth created by
Mexican workers in the most dynamic sectors of
their nation's industry is appropriated by com-
panies like General Electric, which reallocate
that wealth based on their own priorities rather
than on the needs of the Mexican people.
In addition to the capital drain represented by
the profits of the foreign companies, the
transnationals racked up an average annual trade
deficit (the amount by which imports exceeded
exports) of $540 million during the 1970-1973
period. This accounted for nearly half of
Mexico's total trade deficit in these years' By
1975, Mexico's negative trade balance topped
$4.5 billion, greatly reducing the nation's ability
to pay off its enormous foreign debt.
Imports by the transnationals (principally
capital goods and raw materials) increased by
some 154 percent in the first four years of the
'70s and accounted for 28 percent of Mexico's
total imports and nearly half of the total capital
goods imported by the private sector.16 Imports
by the transnationals come mainly from their
country of origin, and then mainly from their
parent company. More than half (54 percent) of
the imports of the companies responding to the
Stanford survey were purchased from their
parent companies, and total imports of the
transnational companies in Mexico from their
parent firms are estimated at about $600 million
a year.1 7
In the case of General Electric, the trade
deficit of the company's Mexican affiliate
totaled $5 million in 1974 alone.' 8 The deficit of
the electrical equipment sector in general grew
from $57 million in 1970 to $94 million in 1973, when it represented nearly 16 percent of the
total trade deficit of the transnationals.1 9
A recent Stanford Research Institute study, commissioned by the American Chamber of
Commerce of Mexico, is anxious to demonstrate
that the imports of the 214 transnationals it
surveyed increased by 154 percent between 1970
and 1974, while exports grew by 200 percent. 2 0
What the study does not point out, however, is
that nearly half of the increase in exports by the
transnationals in those years is accounted for by
only four companies in the auto industry. 2 1 Nor
does the study mention that while the exports of
the surveyed companies may have grown faster
than imports in those years, their total trade
deficit still more than doubled.
NACLA Report 16Sept./Oct. 1977
During the past decade, the domination of
Mexico's industry by the transnational corpora-
tions has increasingly been at the expense of
national capital - that is, through the acquisition
of already existing companies. A recent study
completed for the U.S. Senate shows that before
1960, over half of the new foreign affiliates
established in Mexico actually represented new
investments. Since the '60s, however, well over
60 percent of the new foreign investments have
been through the take-over of existing com-
panies. And since 1970, the study indicates, at
least three-fourths of all new foreign investments
have been in the form of acquisitions. 2 2
Such evidence seriously undermines the argu-
ments of the transnationals regarding the impor-
tance of their contribution to general capital
accumulation and employment creation in Mexi-
co. They are doing little more than purchasing
already existing enterprises.
The other side of the coin has been the
so-called process of "Mexicanization," that is, the growing number of foreign enterprises which
have some degree of national capital investments.
Of the nearly 2,000 companies with foreign
capital examined in a recent study, more than
half (54 percent) were completely foreign
owned, while nearly one-third (31 percent) had
between five and 49 percent national capital
participation. 2 3 While this tendency might ap-
pear to reflect a growing control over the
economy by the national capitalists, in fact, it
demonstrates the increasing use of Mexican
NACLA Report
resources to finance foreign investments which
remain largely controlled from abroad. (In
1969-1970, a full 61 percent of the new assets of
the transnationals examined in a recent study
were financed with local resources. 2 4 )
The penetration of foreign monopoly capital
into Mexico has greatly advanced the process of
monopolization of the entire Mexican economy.
By 1965, 1.5 percent of the industrial corpora-
tions in Mexico controlled 77 percent of all
industrial capital. 2 5 40 percent of all industrial
production in Mexico is now generated in sectors
in which the largest four establishments account
for more than half of the total production. A
conservative estimate for the overall concentra-
tion index of Mexican industry - that is, the
participation of the four largest enterprises in the
total production of the sector - is 43 percent,
slightly higher than that of U.S. industry, which
is calculated at 39 percent. 2 6
The transnational corporations are located in
precisely those sectors with the highest level of
concentration, and generate a majority of the
production in those industries. 61 percent of all
production by the transnationals is in sectors
with a level of concentration higher than 50
percent. (And more than 90 percent of the
transnationals' production is in sectors of con-
centration greater than 25 percent.) By compari-
son, only 29 percent of the production of
national enterprises is in sectors with more than
50 percent concentration. 2 7
While the average size of foreign subsidiaries
in Mexico is only one percent that of the
respective transnational firms to which they
belong, they are, on the average, fully 30 times
larger than national companies in the same
industries. 2 8
The Stanford study revealed that 81 percent
of the companies in their survey consider
themselves "leaders" in their respective markets.
55 percent of these firms claim control of more
than 26 percent of the market in their industries.
For the electrical equipment sector, of the 15
companies in the Stanford survey, one claimed
control over three-fourths of the market (un-
doubtedly General Electric), while another
claimed between one-half and three-fourths of its
respective market. Another five boasted a market
control of 26-50 percent. 2 9 "
Such levels of monopolization are explained
by a number of factors. First, the international
structure of the foreign monopolies has provided
them with considerable competitive advantages
with which to penetrate the economy. Related to
the presence of foreign capital, the increasing
scale of industrial technology required to com-
pete in the world of the transnationals has had
the effect of eliminating smaller firms which do
not have access to the financing required for such
large-scale investments, and of quickly saturating
the limited Mexican market with the production
of a handful of firms. And lastly, the govern-
ment's policies of protectionism and open-door
attitudes towards foreign investment has guaran-
teed the domination of monopoly corporations.
Thus the penetration of foreign monopoly
capital into Mexico has sapped the nation of
billions of dollars and perpetuated monumental
distortions in the country's trade patterns.
Through the general process of monopolization
and denationalization of the economy, foreign
capital has remolded the Mexican bourgeoisie
over the past thirty years. The smaller Mexican
capitalists have found themselves pushed out or
bought out of an increasing number of industrial
sectors, while the larger bourgeoisie, through
joint ventures with the transnational corpora-
tions and foreign credit arrangements, finds itself
increasingly tied to the .interests of foreign
monopoly capital. Likewise, the Mexican state
finds itself ever more deeply in hock to the loan
sharks of international financial interests, and as a consequence is less flexible in its efforts to
represent sectors other than the large bourgeoisie
linked to the foreign corporations.
Yet the most profound impact of imperialist
domination has fallen upon the Mexican working
class, a fact of crucial political consequence
which is analyzed in detail in the following
articles on Mexican workers in the electrical
power and equipment industries.
* Price-fixing through collusion among large corporations has always been a factor making the reality of monopolization far greater than even these statistics indicate. In the United States, General Electric, Westinghouse, Allis-Chalmers and others have a long history of such collusion, and GE itself has faced more than 64 anti-trust lawsuits since 1911.30 There is no reason to assume that similar collusion among these same companies does not exist in Mexico as well.

i. U.S. Senate Committee on Finance, Implica-
tions of Multinational Firms for World Trade and
Investment and for U.S. Trade and Labor, February,
2. Based on data supplied by General Electric.
3. U.S. Senate,op. cit.
4. Data supplied by General Electric.
5. Bernardo Sepulveda and Antonio Chumacero,
La inversion extranjera en Mexico, Fondo de Cultura
Economica, Mexico, 1973.
6. Fernando Fajnzylber and Trinidad Martinez
Tarrago, Las empresas transnacionales: Expansion a
nivel mundial y proyeccion en la industria mexicana,
Fondo de Cultura Economica, Mexico, 1976.
7. Ibid.
8. Sepulveda and Chumacero, op. cit.
9. Ibid.
10. Ibid.
I I. Harry J. Robinson and Timothy G. Smith, The
Impact of Foreign Private Investment on the Mexican
Economy; prepared for the American Chamber of
Commerce of Mexico; Stanford Research Institute,
Menlo Park,California, 1976.
12. Victor Bernal Sahagun, The Impact of Multi-
national Corporations on Employment and Income:
The Case of Mexico, International Labor Office,
Geneva, 1976.
13. Iajnzylber and Martinez, op. cit.
14. Sepulveda and Chumacero, op. cit.
15. Fajnzylber and Martinez, op. cit.
16. Ibid.
17. Ibid.
18. Data supplied by General Electric.
19. Fajnzylber and Martinez, op. cit.
20. Robinson and Smith, op. cit.
21. Fajnzylber and Martinez, op. cit.
22. Richard S. Newfarmer and Willard F. Mueller,
Multinational Corporations in Brazil and Mexico:
Structural Sources of Economic and Noneconomic
Power, Report to the Subcommittee on Multinational
Corporations of the Committee on Foreign Relations,
U.S. Senate, August, 1975.
23. Sepulveda and Chumacero,op. cit.
24. Fajnzylber and Martinez, op. cit.
25. Aguilar and Carmona, Mexico: Riqueza y
miseria, in Mario Huacuja R. and Jose Woldenberg,
Estado y lucha politica en el Mexico actual, Ediciones El
Caballito, Mexico, 1976, p. 32.
26. Fajnzylber and Martinez,op. cit.
27. Ibid.
28. Ibid.
29. Robinson and Smith,op. cit.
30. Jerry de Muth, "General Electric: Profile of a
Corporation,"Dissent, July-August, 1967.

Tags: Mexico, debt, electric power, transnationals, foreign investment

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