L'Eggs, Florsheim, Le Sportsac and Maidenform-all familiar brand names which stream into the U.S. market from production spots on the global assem- bly line. Most Caribbean women em- ployed in manufacturing these and other items are part of a recent global trend: international subcontracting. Under this strategy, manufacturers based in developed countries subcon- tract the most labor-intensive stages of production, for example sewing or as- sembly, to the Third World nations where labor is cheap. Once assembled, the multinational re-imports the goods-- under generous tariff exemptions-to the developed country instead of selling them on the local market. The sub- contractor may be the multinational's own subsidiary, as in the case with nearly all operations which employ women assembling electronics for for- eign companies in free trade zones. Or the subcontractor may be an indepen- dent firm or an agent who further sub- contracts the assembly work to women who work in their own homes. While global recession has markedly slowed trade and investments world- wide since 1979, international subcon- tracting has boomed. As a result, Car- ibbean nations now supply the United States with 20% of its playsuits*, 23% of its hosiery, 15% of its dresses, 19% of its cotton nightwear and a host of other assembled products. This rapid growth of subcontracting appears to signal a significant shift in the methods used by multinationals penetrating the Caribbean basin. Tradi- tionally, U.S. corporations' main in- volvement in developing countries has *Playsuits include such garments as beach tops, halters and short jump suits. John Cavanagh, a fellow at the Insti- tute for Policy Studies, and Joy Hackel, a staffperson of Policy Alternatives in the Caribbean and Central America (PACCA), work on IPS' project on transnational corporations. been through direct investment-either fully owned subsidiaries or joint ven- tures. U.S. investment in the develop- ing world has now surpassed $50 billion. Since the most recent global eco- nomic downturn in 1980, however, banks cut back the volume of new loans, and new flows of U.S. direct investment to developing countries de- clined. After years of steady growth, new investment did not even hit the $6 billion mark in either 1981 or 1982. In contrast, subcontracted imports to the United States from the developing world exceeded $7 billion in both years. Over the four-year span from 1979 to 1982, subcontracted imports rose steadily from 21% of manufac- tured imports from developing coun- tries to 26%. In all 10 of the leading subcontracting countries in the Carib- bean and Central America-except Honduras-the value of subcontracted exports to the United States exceeded .new U.S. investment in 1981. IMF and Bank Encouragement The shift toward subcontracting in This Business Week ad reflects Barbados' campaign to attract foreign investment. BARBADOS 1984 April 16, 1984 MAY/JUNE 1984 the Caribbean basin, as in Southeast Asia, has been encouraged by the World Bank and International Mone- tary Fund, which have emphasized assembly-type, light manufactured ex- ports as the centerpiece of development. Since the late 1970s, bank and fund advice and loan conditions have stimu- lated government incentives favorable to multinational subcontracting in these countries. While debates rage over the pros and cons of such development schemes, one figure stands out: for the two major subcontracting industries- semiconductors (the essential compo- nent in the electronics industry) and apparel-less than two-fifths of the value of the final imports to the United States are added in the developing countries. (Theoretically, this value should accrue to the country, but even this fraction is overstated, since some of it represents profits and other returns to multinational subsidiaries, which will be wholly or partially expatriated from the developing country.) Since most subcontracting arrange- ments involve no capital investment by multinationals, it is easy for a multina- tional to break a contract in the face of political upheaval and establish a simi- lar one in another country. In addition, the multinational can avoid the risk that its investment will be nationalized on unfavorable terms. Likewise, in the uncertain atmosphere 11of the currenteconomic crisis, multina- tionals can more easily slash produc- tion orders without idling their own industrial capacity. Finally, since the multinational is often the sole buyer from the subcontractor, it is able to dictate price and conditions in the con- tract from a position of monopoly power. If the subcontractor is in a subordi- nate position to the multinational, the worker is even lower on the spectrum of power. With the exception of the automobile industry, subcontracted la- bor falls on the shoulders of the female workforce, particularly in semiconduc- tors, consumer electronics and apparel. Poor Health and Safety Records In the continuing controversy over the advantages and disadvantages of multinational investment, most concede the often dangerous health and safety A cruise passenger arrives in Haiti, 1983. Jvtte Rodaaard standards in multinational factories. The saire could be said of subcontract- ing to multinational subsidiaries, which is usually the case with semiconductors and often with autos. The story grows much worse, how- ever, when subcontractors are domes- tic firms, or simply home workshops. Locally owned firms are typically in a far more precarious financial situation than multinational subsidiaries, which have the best access to capital markets through ties with the multinational banking network. Hence, whereas the quoted wage rates offered by multina- tional subsidiaries are usually not much more than those offered by domestic firms, the latter often have a far worse record in paying wages on a regular basis. And, while multinational sub- sidiaries often use dangerous industri- al chemicals and eye-damaging micro- scopes under which electrical compo- nents are joined, workers in domestic firms often face the dangers of old, poorly maintained machinery. Conditions deteriorate further when work is subcontracted to the home, as is often the case with apparel. Here, women work in isolation, receiving even lower wages, no social welfare benefits and--since they usually work on a piece rate basis-are totally at the whim of the multinational supplier. In turn, the multinational reduces the overhead and minimizes the chance of labor unrest. Industrious, Dependable People After Mexico, with its over 600 ma- quila factories on the U.S. border, Haiti has attracted the most subcon- tracting business in the region. Accord- ing to Capital Consult, a Haitian re- search firm, some 154 corporations have subcontracting arrangements in Haiti, 42% of them foreign owned. It is not coincidental that the Caribbean's largest subcontractor is also the poorest country in the Western Hemisphere. Haiti's shockingly low per capita an- nual income of $280 per year reflects the level of "development" at which subcontracting flourishes. Unlike more capital-intensive forms of industry, most subcontracting requires little in- frastructure, capital outlay or transfer of technology. Haiti offers, according to its invest- Best Assembly Plant Operation In the Caribbean: Haiti "That's right-Haiti. We're not talking about a steel mill or chemical plants-but if you have in mind a light assembly or pro- cessing operation, you'd do well to take a look at Haiti. Scores of American companies are right now making excellent profits from Haiti's minimal labor costs, among the world's lowest; so are taxes. And you'll get along fine with the government of Pres. Jean- Claude Duvalier-if you've made a deal with Jean-Claude Duvalier. Sure it's a dic- tatorship, but in a sense it always has been. Though not as stable as many of the coun- tries in the Caribbean, the fact that you can recoup your initial investment in a short period of time and the profit potential is great enough that one does not have to look for long term stability. Haiti has one of the world's lowest stan- dards of living. The country seems eternally beset by bad luck-hurricanes, drought and political violence. But all that has had very little adverse effect on the scores of Ameri- can firms with light manufacturing opera- tions in and around Port-au-Prince. They continue to make huge profits turning out such items as clothing, jewelry, most of the world's baseballs, even electronic products. Most of them recoup their initial invest- ment the first year-which is why they can afford the corporate risk of investing in this troubled land. As for personal risk, it's much less than on the island of Manhattan. No American businessman has ever been killed or kidnapped." Caribbean Dateline, December 1983. 12 REPORT ON THE AMERICAS ment brochures, "An industrious peo- ple, dependable, friendly and eager to respond to productive challenges," and "A tradition of respect for private property and foreign ownership." Within the seriously depressed Hai- tian economy, subcontracting has been brought to center stage and, in the past decade, has been the economy's fastest growing sector. The total value of as- sembly industry exports skyrocketed from $2.3 million in 1967 to $86 mil- lion in 1976; by 1981 this category of exports to the United States alone ex- ceeded $171 million. Presently, 90% of all manufactures produced in Haiti for U.S. markets are made under a subcontracting arrangement. Clearly, the rise of subcontracting has not diversified Haitian exports. As of 1976, three products together made up over 80% of the total value of sub- contracted exports: apparel and acces- 12 REPORT ON THE AMERICASsories (39%), toys and sporting goods (29%), and electrical and electronic equipment (13%). Over 3 million bras for U.S. customers are assembled an- nually by Haitian and Dominican wo- men who can't afford to buy even one. Since 1960, the Haitian government has actively wooed subcontracting by enacting a series of decrees which pro- vide lucrative incentives to foreign firms. Inside a 25-hectare* "industrial zone" in the capital city of Port-au- Prince, companies producing targeted products are exempt from income tax for eight years and pay the total tax only after the 14th year of production. Among the array of privileges: foreign patent and licence fees are not appli- cable for 10 years. Production inputs, 70% of which originate in the United States, are imported duty-free. Dictatorship Best for Haitians Haitian Manufacturers Association officials also frequent trade fairs and conferences in Florida and elsewhere with the explicit message that Haiti can make subcontracting highly profitable for U.S. firms. At recent conferences in Florida, the association's president, Andre Arpaid, has also played on fears about new Haitian refugees by arguing that subcontracting will create island jobs and "stop Haitians from invading Florida." Haitian subcontractors offer other allurements. General Assembly (owned by one of Haiti's wealthiest families) pays all overhead, supervision, social security and training costs for the as- sembly work of several U.S. corpora- tions. Perhaps Haiti's most enticing incentive to subcontracting firms is the lowest industrial wage scale in the Caribbean-a minimum wage of $2.64 to $3.12 per day. The 154 subcontract- ing firms operating in Haiti employ 80% of the nation's workforce at these subsistence wages, while attaining pro- ductivity levels of 75-80% of U.S. levels. Stanley Urban, president of the Hai- tian-American Chamber of Commerce and Industry, summarized the attrac- tion in 1982. "There's more democ- racy for business in Haiti than for busi- ness in the United States," he told the Multinational Monitor. "A dictatorship *1 hectare = 2.4 acres. is the best form of government for these people. There are six million illiterates on that island. Think what the Russkies could do there." Data Processing by Satellite In the short and medium term, all forms of subcontracting are likely to grow. The technological possibilities of banks and corporations transporting segments of office work-a bastion of female labor-to the Caribbean for re- turn via satellite open up vast and ominous new horizons for corporate deployment of subcontracting in a vari- ety of service sectors. Certain English-speaking Caribbean governments have already begun to of- fer incentives for such international of- fice work subcontracting. At the fore- front is Barbados, an island where by the late 1970s, 59 of 170 industrial enterprises were involved in interna- tional subcontracting. In the new office work "factories," local workers receive information via satellite at the Barbados plant, type it into a computer and then transmit it back to the United States. In one operation orchestrated by Satellite Data Corporation of New York, Barba- dians are paid $1.50 per hour for work that earns their U.S. counterparts $4 to $12. Passage of the Caribbean Basin Eco- nomic Recovery Act of 1983, guaran- teeing duty-free access to the U.S. market and a host of new incentives for multinationals, assures that Caribbean subcontracting will continue to grow. Familiarly known as the CBI, the act begins its 12-year existence during months of intense congressional debate over renewal of the Generalized Sys- tem of Preferences (GSP), the U.S. trade legislation which already guar- antees duty-free entry of many devel- oping country products into U.S. mar- kets. Corporate fears that the GSP might expire without renewal in January 1985 has sent a flurry of trade representa- tives and corporate officials to Carib- bean sites from Hong Kong, South Korea and Taiwan as well as from the United States. "I foresee tens of thou- sands of new jobs in the region over the next five years," claimed Frederic Brooks, chairman of MacGregor Sport- ing Goods, which is expanding opera- tions on the island by shifting produc- tion involving several hundred jobs from Taiwan to Haiti. Singularly lack- ing in government and corporate pro- nouncements about the Caribbean is any coherent notion of how the corpo- rate involvement will enhance genuine development schemes based on the needs of the majority.
Tags: multinationals, subcontracting, Caribbean, IMF