People often talk about labor-intensive, low paying industries like garments as the first-step to a nation’s economic prosperity – sort of a starter drug for emerging economies. Name a developed nation and you can point to a period of hard work and low pay in their history.
People always use Japan and Taiwan as recent examples of moving from garments to big, bustling economies. They think that China, Bangladesh, Cambodia, etc. are on the same path.
But business moves faster now.
This year I might source my widgets from Mexico, but next year maybe China or Indonesia.
Speaking of Mexico, it sits there right beneath the biggest bunch of spend-crazies in human history. Few countries sought to benefit more from the global economy than Mexico.
So Mexico, how’s that going for ya?
(From Elizabeth Malkin’s piece in the NY TIMES NAFTA’s Promises Unfulfilled)
Domestic industries were dismantled as multinationals imported parts from their own suppliers.
Local farmers were priced out of the market by food imported tariff-free. Many Mexican farmers simply abandoned their land and headed north.
Things grew worse when the tech bubble burst, the American economy cooled and the companies moved to China, where they could pay even lower wages. Once China entered the World Trade Organization, Mexico lost much of the edge in exporting to the United States that Nafta had given it. Employment in Guadalajara’s I.T. factories dropped 37 percent in 2001 and continued to slide for two years.
There is no doubt that trade can lead to development. But industry has to stick around long enough to give that development a chance. Maybe business moves too fast now to create more Taiwans and Japans.