William Mitchell is an ex-Army lieutenant colonel with the aggressive optimism of a good salesman. He spent almost 30 years in the military before ending his career at Ft. Bliss, across the Rio Grande River from here in El Paso. Now he is helping to turn his adopted home into the North American Hong Kong.
Each morning, he leaves El Paso and drives into Mexico over one of the bridges that links the twin cities. From atop that bridge, you can watch the daily traffic -- legal and illegal -- between cities that have been artifically separated by the imposition of a national border and which now have a symbiotic relationship. Mitchell's office looks out over an oasis of green grass and cool shade trees in a modern industrial park that belies the sun-baked poverty of the city around it.
"My job," Mitchell said on a recent spring afternoon, "is to go out and attract companies to the Juarez-El Paso area." Mitchell works for a Mexican company called Grupo Bermudez. It specializes in attracting mostly American corporations to set up assembly plants in tailor-made industrial parks in Juarez.
Given Mexico's current economic problems, it would seem to be a difficult time to be recruiting companies to the U.S.-Mexican border, but Mitchell says business has rarely been better.
The peso devaluation has made the pool of cheap labor here even cheaper, and with favorable tariff treatment, U.S. companies looking for an overseas operation are increasingly looking closer to home.
"We're talking to people every day who are thinking about moving out of Hong Kong, out of Taiwan, or out of Korea," Mitchell said.
What has happened here is clear evidence of how companies in a high-wage economy like the United States' instinctively seek out low-wage alternatives in the less-developed world. Not everyone in El Paso believes the factories across the border are helpful either to the U.S. economy or to the city itself, but the movement of companies into Juarez continues regardless of the controversy it creates.
There is no easy way to stop it -- nor is there agreement that it should be stopped. This movement of jobs to low-cost labor markets is a reflection of today's world economy, which is not just interdependent but often oblivious to national borders.
The range of businesses that have set up operations here in Juarez and El Paso is impressive: television sets, advanced circuit boards for computers, hospital gowns, automobile seats, toy trucks, recording equipment and blue jeans. Included here are some of the biggest names on the Fortune 500: General Motors, General Electric, Westinghouse, RCA. Increasingly, the El Paso-Juarez area is becoming a home for high tech -- General Instruments, AMF and Atari.
Some of these companies are based in El Paso, which during the 1970s was the fastest- growing major city in the nation. But increasingly, it is the tail of Juarez that wags the dog of El Paso. As city leaders here look into the future, it is the economic potential of Juarez that makes them optimistic.
The reason is a curiously named phenomenon called the "maquila" company. The rough translation for "maquila" is grist mill, according to the corporate types here. And that is, in simplified form, what the institution of the maquila is all about. In the old gristmill, a farmer brought his grain to the mill, where it was processed and returned to him. Here in Juarez, American and other companies bring their materials to Mexico, assemble them in industrial parks of the kind offered by Lt. Col. Mitchell, and then send them back to the U.S. for either further assembly or distribution.
The maquila plants have a special prominence in Mexico's economy because of the special tariff treatment the materials receive. Alternately known as the "twin-plant concept," or "in-bond companies," the maquila plants provide American companies an opportunity to obtain cut-rate tariff treatment on products that are assembled "overseas" without having the problems of putting an assembly plant thousands of miles and an ocean away from home.
In simplified fashion, this is how it works. An American company manufactures the parts to, say, an outdoor speaker for a public address system, in its factories somewhere in the United States. The parts are shipped to another factory here in Juarez. The company pays no duty on the parts when they are brought into Mexico, although it must put up the value of the parts in bond in an account in Mexico. In Juarez, the parts are assembled into the finished speaker and, often, packaged for shipment to distributors around the U.S. or the world. When the speakers are shipped back into the United States, the U.S. company pays duty on the value of the finished product, minus the value of the American parts. This is roughly the equivalent of paying a tax on the value added, but in practice it is not quite the same thing.
RCA, for example, ships the parts of a color television chassis to Juarez, where they are assembled, and shipped back to the United States. There, the chassis and tube are fitted into a cabinet, and the TV is ready to be sold.
The maquila concept was started in the mid-1960s by the Mexican government as a way of stimulating economy growth along the continually depressed U.S.-Mexican border, and, according to one businessman here, to compensate for the loss of jobs in the United States that occurred when the old Bracero program was ended.
Today there are about 600 such plants stretched along the nearly 2,000-mile boundary. But the greatest concentration is here in Juarez, which has about 125 maquila plants, employing about 45,000 workers. After oil, the maquila plants are Mexico's largest source of valuable American dollars.
"Peter Drucker calls this production sharing," Mitchell said as he described the process. "Most of the jobs here are jobs of the lowest skill that most Americans won't take. They are the most labor-intensive part of the product. If you didn't have these plants, nearly everything on the shelves in the United States would be made in Japan."
Chuck Parks skillfully navigates his old, full-sized, American-made car through the chaotic midday traffic on the streets of Juarez, when suddenly he makes a hard right turn into what appears to be a deserted, dirt- covered alley.
Parks grew up in New York State, the son of a stockbroker, and a few years ago, after graduating from college, migrated to El Paso. He rode horses for a while, trying to figure out what to do with himself, and then went on to acquire a graduate degree in business administration in Mexico. He devoted his energies in graduate school to studying the maquila industries, and he soon landed a job as marketing manager for Elamex, S.A., a Juarez company that does contract work for American companies who don't want to start their own maquila.
The alley he has turned into is lined with concrete fences hiding the small backyards of the homes of Juarez residents. A block or so down, there suddenly appears a larger building, one of the Elamex factories. As he pulls to the curb, Parks remarks that most students of Mexican business concentrate on other types of ventures in their country, mostly ignoring the maquila plants. "They call them monkey business," he says.
Inside, the factory is humming with activity. The building is old, but it is clean and well-lighted, and there is a fair amount of space between the assembly lines. Many of the maquila plants, especially those in the newer industrial parks, are even more modern. Despite charges that the companies are exploiting the workers in 20th-century sweatshops, a brief tour of this one, at least, suggests otherwise. It is hardly glamorous, but neither is it particularly onerous.
Most of the work in this plant involves electronics. Parks describes the operations in crisp detail, explaining for t plahe untrained eye the difference between a relatively simple and a more sophisticated circuit board.
One assembly line is particularly interesting. A group of young Mexican women are putting together boards that will go into sophisticated disc drives for computers. There is a significant amount of handwork to do on each board: the women must carefully insert a variety of small parts into tiny holes, and then the entire board is soldered from beneath as it moves along a conveyor.
But what is most interesting about this particular line is its history. The boards once were made in a partially automated San Antonio plant. But Control Data, the company for which Elamex is making them, decided it needed to reduce costs on the line and shifted production to Mexico, where it is now being done totally by hand -- and without loss in quality. A Control Data spokesman said the move enabled the company to save about 10 percent in production costs.
The shift to the Juarez plant is an ironic reversal of the standard evolution of manufacturing, where production went from human hand to machine at lower cost and higher quality. It is the clearest example of why the large pool of cheap labor in developing countries has attracted an increasing share of the world's production.
Elamex is the brainchild of Charles Dodson, a stocky, friendly fellow who first came here to help set up a maquila plant for an American electronics company. Sensing the potential of maquilas, he went into business for himself. He now does about $6 million in sales annually, employing about 900 people. The only Americans in the company are himself and Chuck Parks.
Many American companies with operations in Juarez are reluctant to allow reporters inside their factories, fearing publicity about slave labor, poor conditions and the like. Dodson was quite the opposite, willingly agreeing to open his facilities and to describe in some detail the way he does business.
Elamex does a variety of assembly work for a variety of companies. Much of it is electronics-related, but not all. In one room in the main factory building, about 200 women sit in rows with stacks of grocery coupons on their desks. No machine has been invented to sort and count the coupons collected by the grocery stores in America. So the only way to do it is by hand. All day long, the women separate coupons into stacks and record the numbers that are then entered into a computer. The "export" is two computers tapes daily to an American company, which then credits the accounts of the stores that have submitted the coupons. "The duty is 18 cents on each tape," Parks said.
While the operations of Elamex are more varied than in other maquila plants, the company is typical is most other respects. Most of its employes are women in their 20s, most of them single who live at home, most with less than a high-school education. They were in Juarez for about two years before being hired. For many, this is their first job. The typical worker has been employed in the same plant for a little less than two years. They arrive by bus at 6:30, six mornings a week, and work a 48-hour week.
That so many of the workers are women is controversial in Mexico, where society is male-dominated. Because of the maquila plants, an increasing number of women are now the major breadwinners in their families.
About two-thirds of the jobs in the factories are minimum wage jobs, Dodson said, and in Mexico the minimum wage is currently 455 pesos per day. Including all fringe benefits, labor costs for these employes run about 85 cents an hour. That includes wages for 365 days each year, a vacation bonus, a Christmas bonus, social security taxes which cover medical care, an education tax, an employe-housing-fund tax, a nursery tax and other costs.
"They are no more capable than the American worker," Dodson said. "But they're no less capable."
The companies who operate here deny they are exploiting the Mexican workers, arguing that the 45,000 jobs created through the maquila aplants are additional jobs for a city of 900,000 people that has always known poverty. "It is exploitation based only on the U.S. wage," said Lt. Col. Mitchell. "But that does not take into consideration real benefits they receive. It's not exploiting them. The government sets the wage."
Tony Sanchez began his working career as a presser in a Los Angeles clothing factory. But he soon became active in his labor union, rising to shop steward and then a business agent. Today he is the manager of the El Paso joint board of the Amalgamated Clothing and Textile Workers Union, and unlike most of the business leaders in the El Paso- Juarez area, he opposes the growing movement of production facitilies into Mexico.
He is sitting in his office along the interstate highway running east out of El Paso on a bright and clear morning, a discordant voice in the chorus of support for the future economy of the area. "The El Paso Chamber of Commerce has always said that the (maquila) plants were good for the economy . . . because people would come in from Mexico and purchase products here," he said. "I didn't believe it then and I don't believe it now. The facts are to the contrary."
What Sanchez sees is a rising tide of cheap imports flooding out American-made products, not just in apparel, but in autos and steel and electronics and even in computers. He believes the operations in Juarez, far from being helpful to El Paso, are fundamentally changing the city's character by lowering its wage levels and taking away jobs from American workers.
Thomas F. Lee, an El Paso business consultant sees the same kind of changes occurring here. Asked if the future of the area is as a new Hong Kong or Taiwan, he replied, "Honestly, I do think so. Our future may be much more tied to Juarez than people think."
What Lee has seen in his years in El Paso is the gradual elimination of locally owned businesses, the arrival of outside firms with operations on one or both sides of the border, and a growing blue-collar work force. "The growth here has been in the low-wage jobs," he said. "We show a real decline in median family income."
Lee sees troublesome consequences for the city as it follows this course: a poor tax base, declining amenities such as parks and museums, increased tax burdens on the middle class and a smaller and smaller pool from which to draw community leaders.
An almost entirely opposite view comes unsurprisingly from the leaders of the El Paso Development Corp., a private firm that recruits industry both for El Paso and Juarez.
"It's a unique situation here," said Sam Drake, the corporation's executive director. "You can put your management structure in (El Paso), deal with U.S. banks, have your kids go to U.S. schools and still deal internationally."
He and his industrial director, Fred Mitchell, see Juarez-El Paso not as an alternative to Detroit or Cleveland but to Indonesia or Hong Kong. "If these companies were not in Juarez, they would not be in Detroit," Mitchell said.
To Drake and Mitchell, there are three choices for an American company facing competition from production facilities overseas: one is to stay in the United States and go out of business; two is to go offshore completely, with no jobs remaining in the United States; three is to manufacture its materials in the United States and assemble them in Mexico. "From Juarez alone, this (process) provides American jobs in 39 states," he said.
The maquila plants have mistakenly been known as "twin plants," on the theory that a company would have a plant in El Paso doing part of the work on a product -- generally the part that requires capital and few people -- and the assembly -- or labor-intensive -- part in Juarez. In practice, there are few truly twin plants, which is what makes people like Tony Sanchez suspicious about the spinoff benefits for El Paso.
But Drake and Mitchell contend that the proximity of Mexico makes El Paso an increasingly attractive city for U.S. companies. Drake cites the example of Tonka Toys, which first established a beachhead in Juarez and recently decided to move its headquarters from Minnesota to El Paso, citing lower labor costs in the Texas city and the ability to stay close to its assembly plant in Juarez.
Both men say other companies are sure to follow that example and expect 1983 to be a record year in the recruitment of companies to the two cities. "We've gotten a tremendous increase in people looking at the maquila program," Mitchell said. In 1982, 27 companies either moved to El Paso and Juarez or expanded existing facilities. "We should top that in 1983," Mitchell said.
But already there are signs of a still further evolution of El Paso and Juarez. What El Paso today is to Juarez -- which is a management center and an area of more sophisticated assembly and production -- Juarez is slowing becoming to other parts of Mexico. Apparel manufacturers report they are sending an increasing amount of work into the interior of Mexico, where production costs are even lower. Chuck Dodson says that as the workers in Juarez gain experience, they are taking on jobs requiring higher skills at higher pay.
Tony Sanchez believes that only the government can halt Juarez's expansion.But there is little likelihood of that, even with the talk of protectionism and trade wars. As Lt. Col. Bill Mitchell put it in the quiet of his office, "These jobs that have to be done by hand are going to be done in countries where there is a pool of low-wage labor."