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 TABLE 3 The Electrical Equipment Industry: Wages and Employment in Selected Countries Employment Production Total Total Total Workers Wages Sales (1,000's) (1,000's) (Mln. $) (Mln. $) Hourly Wages of Prod. Workers Wage Costs (Prod. workers)/ Dollar Sales U.S. 1966 1,811 1,319 11,988 40,843 3.03 .18 1970 1,840 1,237 14,756 48,137 3.82 .17 England 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 Brazil 1966 95 73 109 728 .59 .095 1970 107 84 151 1,014 .68 .091 Mexico 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 generally. FOREIGN INVESTMENT AND THE MEXICAN 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, Country 14 NACLA ReportSept/Oct. 1977 15 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 53,000.8 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 Report. PROFITS: MEXICO'S NO. 1 EXPORT 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 years.'* * 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 16 TABLE 4 Percentage Participation of the Transnational Companies, Private National Companies & State Companies in Mexico's Industrial Production, 1970. (selected industries) Industrial Sector Food Beverages Paper & cellulose Rubber products Chemicals Petroleum products & coke Basic metals Non-electrical machinery Electrical machinery Transportation equipment Total Nat. 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 participation. 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. TRADE DEFICIT OF THE TRANSNATIONALS 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 DENATIONALIZATION OF MEXICAN INDUSTRY 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 1718 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 ) MONOPOLIZATION AND CONCENTRATION 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.
ELECTRICAL EQUIPMENT 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, 1973. 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.