HOW NAFTA WORKS

NAFTA makes it easier for corporations in these three countries (the US, Canada, and Mexico) to invest in factories and other facilities in any of the three countries. Let’s say that a US company invests in a factory in Mexico. This creates a demand for labor in Mexico.

But at the same time, it does two other things. Local small enterprises in Mexico are driven out of business, ruining local profit centers. The profits for the foreign investors do not stay in Mexico, where the investment was made. Second, the new facilities do not hire as many workers as are displaced by the switch from local ownership to absentee ownership. They pay more to each worker, but they pay to fewer workers, especially when farms are mechanized. (I’ve mentioned the formula in class several times: one medium-sized tractor displaces 65-80 farmworkers in poor countries.) They also change the character of the local economy, essentially eliminating subsistence farming and non-cash exchange. If you don’t draw a wage, you are driven into poverty since you can’t feed yourself and you can’t exchange your labor for anything except cash.

So, for awhile (actually only a few years), the increased business created by international trade makes the economies of all countries involved look good. It is an illusion because only corporations are doing well; workers in all countries are getting lower wages, and small businesses that depend on workers spending their money in local shops, bars, and restaurants are getting squeezed.

Then other countries step in (Malaysia, Thailand, China, etc.) and offer lower wages to foreign investors. The corporations move their facilities to those countries. This has a multiplier effect. First, many of the Mexicans who went into the factories lose their jobs. But the local businesses have also been ruined, so there is no traditional job to which to return. This also means that Mexicans can no longer buy the products being exported from the US and Canada.

So jobs are lost in the US and Canada, especially the jobs that depended on producing exports. Each country’s economy is hurt in the long run. Only the corporate investors, who are not loyal to any country, make out—like bandits.

11/12/05