The Manufacturing Sector in Argentina, Brazil, and Mexico: Transformations and Challenges in the...

THEMANUFACTURINGSECTOR INARGENTINA,BRAZIL,AND MEXICOTransformations and Challenges inthe Industrial Core of Latin America

PALGRAVE STUDIES

IN LATIN AMERICAN

HETERODOX

ECONOMICS

EDITED BY JUAN EDUARDO SANTARCÁNGELO

Palgrave Studies in Latin American Heterodox Economics

Series EditorJuan Eduardo Santarcángelo

National Research Council of Science and Technology (CONICET)

Buenos Aires, Argentina

Universidad Nacional de Quilmes (UNQ)Bernal, Argentina

The aim of the series is to analyze the economic, social, and political evolution of countries in Latin America. The authors in the series are serious heterodox economics scholars who want to shine light on Latin America’s economic profile. Each book in the series takes on a single topic (crisis, growth, income distribution, the manufacturing sector, etc.), either from the point of view of a single country or a group of them. This analysis then in turn adds to our understanding of Latin America’s regional economic character and development challenges and capabili-ties. In this way, this series makes an unusual contribution to economics by studying a region as a whole without losing sight of the particularities of each country as a part.

More information about this series at http://www.palgrave.com/gp/series/14614

http://www.palgrave.com/gp/series/14614

Juan Eduardo SantarcángeloEditor

The Manufacturing Sector in Argentina, Brazil, and Mexico

Transformations and Challenges in the Industrial Core of Latin America

Palgrave Studies in Latin American Heterodox EconomicsISBN 978-3-030-04704-7 ISBN 978-3-030-04705-4 (eBook)https://doi.org/10.1007/978-3-030-04705-4

Library of Congress Control Number: 2018964184

© The Editor(s) (if applicable) and The Author(s) 2019This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed.The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use.The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

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This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AGThe registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

EditorJuan Eduardo SantarcángeloNational Research Council of Science and Technology (CONICET)Buenos Aires, Argentina

Universidad Nacional de Quilmes (UNQ)Bernal, Argentina

https://doi.org/10.1007/978-3-030-04705-4

To Victoria, Violeta, Nico, and Male

vii

I am pleased to publish the second book of the Series Palgrave Studies in Latin American Heterodox Economics with Palgrave Macmillan. Palgrave Macmillan has long served as an important source for heterodox eco-nomic analysis and has provided throughout the years rigorous and deep analysis on Latin American problems and more importantly on the pos-sible solutions and ways to be applied by the countries of the region.

In particular I want to thank Elizabeth Graber, in-house editorial director of the project, for his constant support and assistance for the realization of the project, Sujitha Shiney and especially Ganesh Ekambaram for their copyediting. I also want to thank the Consejo Nacional de Investigaciones Cientítficas y Técnicas (CONICET) and the Universidad Nacional de Quilmes (UNQ) for giving me the economic and institutional support to carry out this project.

Acknowledgments

ix

Contents

Introduction 1Juan Eduardo Santarcángelo

The Manufacturing Sector in Argentina at the Beginning of the Twenty-First Century 7Juan Eduardo Santarcángelo

Structural Change and the Manufacturing Sector in the Brazilian Economy: 2000–2014 61Carlos Aguiar de Medeiros, Fabio Neves Peracio Freitas, and Patieene Alves Passoni

The Manufacturing Sector in Mexico During the Neoliberal Period 97Abelardo Mariña Flores and Sergio Cámara Izquierdo

x Contents

The Evolution and Challenges of Latin American Industrial Development in the Twenty-First Century: An Analysis from Argentina, Brazil, and Mexico 149Juan Eduardo Santarcángelo and Juan Manuel Padín

Index 193

xi

Sergio Cámara Izquierdo is Professor of Political Economy at the Universidad Autónoma Metropolitana-Azcapotzalco, Mexico.

Fabio Neves Peracio Freitas is a professor at the Economics Institute of the Universidade Federal do Rio de Janeiro (UFRJ), Brazil.

Abelardo Mariña Flores is Professor of Political Economy at the Universidad Autónoma Metropolitana-Azcapotzalco, Mexico.

Carlos Aguiar de Medeiros is a professor at the Economics Institute of the Universidade Federal do Rio de Janeiro (UFRJ), Brazil.

Juan Manuel Padín is a researcher at the Universidad Nacional de Quilmes in Buenos Aires, Argentina.

Patieene Alves Passoni is a PhD graduate student at the Economics Institute of the Universidade Federal do Rio de Janeiro (UFRJ), Brazil.

Juan Eduardo Santarcángelo is a researcher at the Consejo Nacional de Investigaciones Cientítficas y Técnicas (CONICET) and a professor at the Universidad Nacional de Quilmes in Buenos Aires, Argentina.

Notes on Contributors

xiii

List of Figures

The Manufacturing Sector in Argentina at the Beginning of the Twenty-First Century

Fig. 1 Average growth rates of GDP and value added of the manufac-turing sector, 1998–2017, selected periods. Source: Own elaboration using INDEC 12

Fig. 2 VA evolution and share of VA 500 biggest firms and VA total, 1993–2001, in index number (1998 = 100) and percentage. Source: Own elaboration using ENGE (INDEC) 24

Fig. 3 Five hundred largest companies according to the origin of capital, 1993–2001, in percentages. Source: Own elaboration using ENGE (INDEC) 26

Fig. 4 VA in the manufacturing sector by technological content, 1997–2017 (1997 = 100). Source: Own elaboration using INDEC 27

Fig. 5 Employment in the manufacturing sector by technological content, 1997–2017 (1997 = 100). Source: Own elaboration using INDEC 30

Fig. 6 Labor productivity in the manufacturing sector by technologi-cal content, 1997–2017 (1997 = 100). Source: Own elabora-tion using INDEC 31

Fig. 7 Wages in the manufacturing sector by technological content, 1997–2017 (1997 = 100). Source: Own elaboration using INDEC 33

xiv List of Figures

Fig. 8 The ratio of labor productivity to real wages in the manufactur-ing sector by technological content, 1997–2017 (1997 = 100). Source: Own elaboration using INDEC 34

Fig. 9 VA evolution and share of VA 500 biggest firms and VA total, 1994–2017, in index number (1998 = 100) and percentage. Source: Own elaboration using ENGE (INDEC) 37

Fig. 10 Five hundred biggest firm compositions according to capital’s origin, 1991–2016, in percentage. Source: Own elaboration using ENGE (INDEC) 38

Fig. 11 Manufacturing trade balance, exports, imports, and terms of trade, 1998–2017 (million USD and index number 1997 = 100). Source: Own elaboration using INDEC and UN COMTRADE 39

Fig. 12 Exports by technological content, 1998–2017, in percentage and total exports 1998 = 100 (index number). Source: Own elaboration using UN COMTRADE 41

Fig. 13 Top export destinations and relative participation, 1998–2017, in percentage. Source: Own elaboration using UN COMTRADE 43

Fig. 14 Imports by technological content, 1998–2017, in percentage and total imports 1998 = 100 (index number). Source: Own elaboration using UN COMTRADE 44

Fig. 15 Top import origins, 1998–2017, in percentage. Source: Own elaboration using UN COMTRADE 44

Fig. 16 Trade balance by technological content, 1998–2017, in million USD. Source: Own elaboration using UN COMTRADE 45

Structural Change and the Manufacturing Sector in the Brazilian Economy: 2000–2014

Fig. 1 GDP, GFCF, and labor productivity rates of growth: 2000–2014 (%). Source: Author’s elaboration based on IBGE data 69

Fig. 2 Annual average rates of growth of gross output of the four industry groups for selected periods (%). Source: Author’s elaboration based on the SNA, IBGE 74

Fig. 3 Industry group share in total gross output of the economy (%). Source: Author’s elaboration based on the SNA, IBGE 75

Fig. 4 The contribution of industry groups to gross output rate of growth for selected periods (in terms of percentage points of the annual average rate of growth of gross output). Source: Author’s elaboration based on the SNA, IBGE 76

xv List of Figures

Fig. 5 The rate of growth of employment of the industry groups for selected periods (%). Source: Author’s elaboration based on the SNA, IBGE 77

Fig. 6 Employment share in total employment by industry group for selected periods (%). Source: Author’s elaboration based on the SNA, IBGE 78

Fig. 7 Rate of growth of value added of the industry groups for selected periods (%). Source: Author’s elaboration based on the SNA, IBGE 79

Fig. 8 The share of the value added of the four industry groups in total value added for selected years (%). Source: Author’s elaboration based on the SNA, IBGE 80

Fig. 9 Labor productivity of the industry groups in relation to the average labor productivity of the economy. Source: Author’s elaboration based on the SNA, IBGE 81

Fig. 10 Rate of growth of labor productivity by industry group. Source: Author’s elaboration based on the SNA, IBGE 82

Fig. 11 Market share of imports (ratio of imports to total demand). Source: Author’s elaboration based on the SNA, IBGE 83

Fig. 12 Share of exports of the four industry groups in total Brazilian exports (%). Source: Author’s elaboration based on the SNA, IBGE 84

Fig. 13 External market share of AC and IC exports. Source: Elaboration by GIC-IE/UFRJ based on COMTRADE (2017) database 85

Fig. 14 External market share of TI and II exports. Source: Elaboration by GIC-IE/UFRJ based on COMTRADE (2017) database 86

The Manufacturing Sector in Mexico During the Neoliberal Period

Fig. 1 Domestic market as motor of accumulation, Mexico, 1950–2016. Source: System of National Accounts of Mexico, base years 2013, 2008, 1993, 1980, 1970, 1960, 1950, Instituto Nacional de Estadística y Geografía (INEGI) 99

Fig. 2 External opening, Mexico, 1970–2016. Source: See Table 2. Note: The different stages of analysis are shown consecutively in light and shadow areas 109

xvi List of Figures

Fig. 3 Maquila exports (current prices), Mexico, 1970–2016. Source: System of National Accounts of Mexico, base year 1993, INEGI; Estadística de la Industria Maquiladora de Exportación, INEGI. Note: Data from 2007 onward include not only maquila, but all manufacturing exports included in the IMMEX Export Promotion Program that substituted the maquila program in 2006. Total maquila includes nonmanufac-turing maquila exports; no data available for 2007 and 2008 110

Fig. 4 Growth of exports, Mexico, 1982–1993 114Fig. 5 Growth of imports in relation to the growth of exports,

Mexico, 1982–1993 115Fig. 6 Openness and trade balance, manufacturing subsectors,

Mexico, 1982–1993 116Fig. 7 Cyclical growth of manufacturing exports, Mexico, 1980–

2016. Note: The rate of growth of manufacturing exports is plotted in the left axis and the GDP growth in the right axis. The different stages of the analysis are separated by a vertical dotted line 117

Fig. 8 Growth of exports, Mexico, 1994–2016 119Fig. 9 Most dynamic export manufacturing subsectors, Mexico,

1993–2016 120Fig. 10 Less dynamic export manufacturing subsectors, Mexico,

1993–2016 121Fig. 11 Trade balance, Mexico, 1970–2016. Note: The manufacturing

sector is plotted in the left axis and the total economy in the right axis. Trade balance as a percentage of the gross value added and the gross domestic product, respectively 122

Fig. 12 Manufacturing trade balance, Mexico, 1970–2006. Source: See Fig. 3. Note: Trade balance as a percentage of the gross value added of the total manufacturing sector 123

Fig. 13 Growth of imports in relation to the growth of exports, Mexico, 1994–2016. Note: Petroleum and coal products is omitted from the figure given its outlier behavior 123

xvii List of Figures

Fig. 14 Trade balance and degree of openness, Mexico, 1994–2016. Note: Petroleum and coal products is omitted from the figure given its outlier behavior. (1) Food, beverages, and tobacco; (2) textile, apparel, and leather; (3) wood; (4) paper, printing, and related activities; (5) chemical, plastic, and rubber products; (6) nonmetallic mineral products; (7) primary metals; (8) fabricated metal products, machinery, and furniture; (9) computer, and electronic and electrical products; (10) trans-portation equipment 124

Fig. 15 Economic growth and growth of exports, Mexico, 1982–1993 130Fig. 16 Economic growth and growth of exports, Mexico, 1994–2016 130Fig. 17 Gross fixed capital formation, Mexico and United States,

2003–2015. Source: See Table 5. The US data corresponds to the fixed assets from the Bureau of Economic Analysis 135

Fig. 18 Productivity growth and growth of exports, Mexico, 1994–2016. Note: Petroleum and coal products and primary metals, sectors that appropriate a considerable amount of ground rent, are omitted 136

Fig. 19 Employment growth and growth of exports, Mexico, 1994–2016 139Fig. 20 Real wage, employment, and productivity growth, Mexico,

1994–2016. Note: Productivity and employment growth are both plotted in the horizontal axis. Petroleum and coal products and primary metals, sectors that appropriate a considerable amount of ground rent are omitted. (1) Food, beverages, and tobacco; (2) textile, apparel, and leather; (3) wood; (4) paper, printing, and related activities; (5) chemical, plastic, and rubber products; (6) nonmetallic mineral products; (8) fabricated metal products, machinery, and furniture; (9) computer, and electronic and electrical products; (10) trans-portation equipment 140

The Evolution and Challenges of Latin American Industrial Development in the Twenty-First Century: An Analysis from Argentina, Brazil, and Mexico

Fig. 1 Trade share to GDP, 1960–2015 (percentages). Source: Own elaboration based on World Bank data 152

Fig. 2 GDP based on PPP, share of world (1980–2015). Source: Own elaboration based on IMF data 156

xviii List of Figures

Fig. 3 Shares of global manufacturing value added, by leading countries (1970–2015). Source: Own elaboration based on UN National Accounts Main Aggregates Database 158

Fig. 4 World financial assets and global GDP USD trillions (1980–2007). Source: Own elaboration based on McKinsey 2009 161

Fig. 5 GDP (annual average growth). 1994–2002, 2003–2007, 2008–2011, 2012–2015, 2016–2017. Argentina, Brazil, and Mexico (%). Source: Own elaboration using World Bank statistics 168

Fig. 6 Manufacturing, value added (annual average growth). 1994–2002, 2003–2007, 2008–2011, 2012–2015, 2016–2017. Argentina, Brazil, and Mexico (%). Source: Own elaboration using World Bank statistics 168

Fig. 7 Gross domestic expending on research and development, total % of GDP. 2000–2014. Source: Own elaboration using World Bank statistics 174

Fig. 8 500 largest corporations in Latin America, by country and share of total sales. 2004–2016. Source: Own elaboration based on AméricaEconomía (2017) and AméricaEconomía (2009) 178

xix

List of Tables

Structural Change and the Manufacturing Sector in the Brazilian Economy: 2000–2014

Table 1 Total backward and forward linkages (2000, 2008, 2010, and 2014) and their evolution for selected periods 87


Table 1 Goods and services trade, Mexico, 1970–1981 108Table 2 Trade of goods and services, Mexico, 1982–2016 112Table 3 Growth, employment, productivity, and real wages, Mexico,

1970–1981 126Table 4 Growth, employment, productivity, and real wages, Mexico,

1982–2016 128Table 5 Fixed investment and FDI, Mexico, 1982–2016 132

The Evolution and Challenges of Latin American Industrial Development in the Twenty-First Century: An Analysis from Argentina, Brazil, and Mexico

Table 1 GDP ranking, current USD, 1970, 1980, 1990, 2000, 2017 157Table 2 Import origins. Selected Latin American countries. 1996,

2006, 2016. Percentages and percentage points 160Table 3 Trade Balance by industrial branch (2003–2017, annual

average). Argentina, Brazil, and Mexico. Millions USD 176

1© The Author(s) 2019J. E. Santarcángelo (ed.), The Manufacturing Sector in Argentina, Brazil, and Mexico, Palgrave Studies in Latin American Heterodox Economics, https://doi.org/10.1007/978-3-030-04705-4_1

Introduction

Juan Eduardo Santarcángelo

After the hegemony of neoliberalism and the application of the Washington Consensus recommendations, actively supported by International Monetary Fund and the World Bank during the 1980s, 1990s, and early 2000s, Latin America experienced strong political changes that led to the arrival of a new group of political leaders to the government, with a renewed vision regarding economic development, and determined to improve the living conditions of the most vulnerable citizens. Néstor Kirchner (Argentina, 2003), Lula Da Silva (Brazil, 2003), Evo Morales (Bolivia, 2006), and Hugo Chávez (Venezuela, 1999), among others, were the main political figures in the new era, and they clearly expressed a new attempt to create a development strategy away from the financial sector and more articulated around the development of productive forces.

J. E. Santarcángelo (*) National Research Council of Science and Technology (CONICET), Buenos Aires, Argentina

Universidad Nacional de Quilmes (UNQ), Bernal, Argentina

http://crossmark.crossref.org/dialog/?doi=10.1007/978-3-030-04705-4_1&domain=pdf

2

The abandonment of neoliberal policies led the region to a period of sustained growth: the growth rates of the countries grew above 4% from 2003 to 2013 (annual average). In that context, one of the most significant characteristics was the outstanding performance of the manufacturing sec-tor. However, it should be noted that industrial development in Latin American countries differs significantly among countries, and it is highly concentrated on the performance of the three most important economies of the region, Argentina, Brazil, and Mexico, which on average from 1960 to the present have generated 75% of the manufacturing value added. The aim of the book is to analyze the recent performance of the manufacturing sector in Argentina, Brazil, and Mexico, the industrial core of Latin America, in order to account for the transformations, challenges and true possibilities of achieving economic development based on industrialization.

In that respect, if we analyze the performance of the manufacturing core of Latin America formed by these three countries, we can see that the virtuous dynamics registered during the first decade of the twenty- first century exhibited significant heterogeneities between them. For instance, until the 1970s, Argentina and Brazil had a model of industrial development, roughly similar, that was strongly anchored in a state-led industrialization strategy; but a few years later, this policy was abandoned and replaced by neoliberal policies, generating a huge setback in terms of industrial development. In the 2000s, in a context of significant global transformations in which the dynamics of production began to be articu-lated around global value chains, through the use of different economic and industrial policies, both countries intended to deepen the existing industrial framework, generate new jobs, and improve real wages. On the other hand, Mexico’s free market development strategy has been roughly the same since the 1980s and, therefore, its industrial policy shows a higher degree of continuity centered in the stimulus and development of the maquila and the trade integration with the United States’ economy.

Despite the high rates of growth, after more than a decade of applica-tion of heterodox policies, the final results were rather ambiguous, and more than once the manufacturing sectors of these countries encoun-tered old problems that resurfaced again (as the external constraint or the pressure in the balance of payments due to capital flight and the remis-sion of profits of multinational corporations), which favored the reversal

J. E. Santarcángelo

3

of many achievements, as well as a gradual appeasement of the growth dynamics. Times are tough today in Latin America. The weak economic performance in the last few years since 2013, boosted by the rise of the governments of Mauricio Macri in Argentina and Michel Temer in Brazil seeking to reinstate the neoliberal dogma and the supremacy of markets, opens serious questions about the ability of these countries to achieve an autonomous industrial development in the long term.

The book seeks, in particular, to provide an exhaustive analysis of the historical evolution of the industrial sector of Argentina, Brazil, and Mexico since the import substitution industrialization stage, the eco-nomic impacts of the process of deindustrialization in the last quarter of the twentieth century during the rise of neoliberal policies, as well as the main transformations registered during the first decades of the twenty- first century when a reindustrialization process was registered. Also, the book studies the existence (or lack) of structural change in the economy and in the industrial sector given the share of the value added (and employment) of specific industry groups in total value added (and employment), its level of technological development, and the degree of articulation and density of the interindustry relations. The third objective of the book is to analyze the evolution on the degree of external depen-dence and international integration that the different industrial sectors of the countries have in order to identify the evolution of the industrial profile that has been consolidated in the three most industrial countries of Latin America and the place that the Latin American industry occupies today in the world economy.

Another objective of the manuscript is to examine the capacity of the industrial sector in Argentina, Brazil, and Mexico to generate employment and improve the living conditions of the working class. In order to do this, we study the evolution of employment during the last decades, the changes in real wages and income distribution in the sector, as well as the different ways that the industrial working class has found to face the transforma-tions suffered by the sector in recent years. The fifth goal of the present volume is to give an account of the role played by the Argentine, Brazilian, and Mexican states in the development of the manufacturing sector dur-ing the last decades. Therefore, we examine the main characteristics, changes, and specific impact that the industrial policy has had in

Introduction

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the sector as well as the different mechanisms applied for its promotion in each country. Finally, the book also analyzes the historical evolution of the degree of concentration, centralization, and foreign ownership of the manufacturing sector of the countries under analysis in order to under-stand the role performed by great corporations and multinational enter-prises, as well as the limitations and possibilities that these evolutions have to economic development.

Although there are individual works that analyze the specific trajecto-ries of the industrial sector in the countries analyzed, there is an enormous vacancy in studies that simultaneously: (1) link together the impacts of the processes of internationalization of the productive process, financializa-tion of the economy, and pressures imposed by trade agreements on the ability to implement industrial economic policy; (2) analyze in depth and in a comparative perspective the successive transformations suffered by the manufacturing sectors of Argentina, Brazil, and Mexico; and (3) examine these phenomena from heterodox theoretical perspectives, which allow not only to look at the main axis of analysis but also to emphasize ele-ments that are not considered in the mainstream approaches.

All the chapters gathered in this book have been prepared by outstand-ing specialists in the field and the book has four chapters after this brief introduction. In Chap. 2, Santarcángelo aims to examine the productive transformations that the Argentine manufacturing sector has experienced since the late 1990s to the present; give an account of the capacity of the industrial sector to generate employment and the evolution of real wages of industrial workers; examine the degree of external dependence of its productive structure; and study the impact that industrial policies have had on the performance of the sector.

Chapter 3, written by Medeiros, Neves Peracio Freitas, and Alves Passoni, focuses the attention on Brazil, the most important and indus-trialized country of the region during the beginning of the twenty-first century. The aim of this chapter is to examine the process of structural change in the Brazilian manufacturing sector from 2000 to 2014, which covers the last years of President Fernando Henrique Cardoso’s second government term, Lula’s presidencies, and Dilma Rouseff ’s first govern-ment. The authors proposed the use of a new indicator and a method-ological approach that emphasize the role of accumulation rate and its


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influence on the measures of industrialization, and the connections between technical progress and interindustrial relations.

In Chap. 4, Mariña Flores and Cámara Izquierdo analyze the general characteristics of the neoliberal restructuring of the manufacturing sector in Mexico and pay special attention to the role played by the precariza-tion of labor as a precursor and result of the external opening. After this deep characterization, the authors investigate the specific way in which the Mexican manufacturing sector articulated to the world market and present the main structural changes experimented by the manufacturing sector during the last decades. Finally, the chapter closes with a very pow-erful critical evaluation of the manufacturing export-led accumulation model that has emerged from the neoliberal restructuring processes and the urgent need to be reformulated.

Finally, in Chap. 5, Santarcángelo and Padín critically analyze and compare the industrial performance of Argentina, Brazil, and Mexico, the three most industrialized countries in Latin America. After a brief account of all major global transformations that have occurred in capital-ism and influenced the dynamics of economic growth that these coun-tries have had since the beginning of the twenty-first century, the authors focus on studying the key variables that describe their industrial path, the impact of the industrial policies applied, and the role performed by the state. The chapter closes underlining the main challenges that Argentina, Brazil, and Mexico will face in the years to come.

In sum, basing our analysis on a precise diagnosis of the main charac-teristics and transformations registered by global capitalism and the industrial sector of the most industrialized countries of the region, we provide an account of the challenges that Argentina, Brazil, and Mexico will face if they try to articulate their possibilities of development around the industrial sector.

Introduction


The Manufacturing Sector in Argentina at the Beginning of the

Twenty-First Century

Juan Eduardo Santarcángelo

1 Introduction

Historically, Argentine economic development was closely linked to industrial development. The country achieved during its model of indus-trialization by import substitution not only the deepest and most articu-lated industrial framework of the Latin American region but also the most organized and combative working class. During this period, real gross domestic product (GDP) grew 300% and the manufacturing sector led this process, and its ratio to GDP went from 18% in 1930 to 39% in 1975 (Basualdo 2006).

In a context of profound economic transformations around the world, especially since the early 1970s, when manufacturing production began




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to be articulated globally in what now is known as global value chains, neoliberalism became the dominant ideology in developing countries and the financialization process quickly spread all over the world; the industrialization model of development in Argentina was interrupted by the military dictatorship that seized power in March 1976. The aim of the dictatorship was not only to interrupt the process of industrialization but also to eradicate the bases that made it sustainable, and the attack was particularly severe on the organizational capability of the working class.

With these objectives, the dictatorship imposed a model of openness and financial hegemony, where the industrial sector ceased to be the core of the economic development process, which drastically became to be focused on financial activities. One of the main impacts of the model was an abrupt process of deindustrialization all over the country, which saw not only a loss in the relevance of the sector in the economy but also a fall in the absolute number of industrial companies, wage workers, and real wages. Only during the first year of dictatorship, the wages of industrial workers fell by 35%, the industrial wage cost fell by 31%, and the surplus obtained by industrial companies improved by 69% (Basualdo 2006).

The return to democracy at the beginning of the 1980s not only failed to reverse the development model based on financial valorization, but this economic model was deepened during the administrations of Alfonsin, Menem, and De la Rua. As a result of the interaction of eco-nomic policies applied, which included economic and trade liberaliza-tion, deregulation of financial markets, privatization of major companies, indebtedness, and reduction of state capacity to design a successful eco-nomic development process, the country ended up suffering in 2001 its worst economic and social crisis.

The manufacturing sector was not oblivious to this reality. Due to the 2001 crisis, manufacturing production and the level of employment in the sector declined 30% and 26%, respectively, between 1998 and 2002 (Porta et al. 2014). However, the almost 130% increase in the exchange rate quickly recomposed the rate of profit, which, in an extremely favor-able international context for the export of primary goods, led the econ-omy to quickly start to grow. The working class and fixed income earners were big losers since the real wage fell around 25% during the crisis.


9

The arrival of Néstor Kirchner in May 2003 and the two successive presidencies of Cristina Fernández de Kirchner after this administration marked a turning point again. By rejecting the main ideas of the Washington consensus and using a set of economic policies aimed at restoring real wages, favoring domestic consumption and investment with successful policies of de-indebtedness, the country had an enormous growth in the industrial sector that for the first time since the industrial-ization by import substitution stage grew at average annual rates higher than the aggregate of the economy.

However, the virtuous dynamics of the industrial sector of growth and job generation could not be sustained over the 12 years that Kirchnerism remained in power, and since 2012 the sector started to show signs of being limited by the resurgence of the external constraint. The arrival of Mauricio Macri in December 2015 to the presidency increased these imbalances due to the decision to return to the application of neoliberal policies (such as economic liberalization, financial deregulation, and exter-nal indebtedness). All these policies had a huge impact on the Argentine economy and in particular on the performance of the industrial sector.

The objectives of this chapter are, first, to examine the productive transformations that the Argentine manufacturing sector has experienced since the late 1990s to the present; second, to give an account of the capacity of the industrial sector to generate employment and the evolu-tion of real wages of industrial workers; third, to examine the degree of relation that the sector has with foreign markets as well as the degree of external dependence of its productive structure; and finally, to study the impact that industrial policies had on the performance of the sector.

Following these objectives, the work is structured into five sections after this brief introduction. In the second section, we provide a brief account of the performance of the economy and the manufacturing sec-tor at the aggregate level, an analysis of the main political transformations of the period under analysis, as well as the main initiatives of each govern-ment and some of the challenges presented to it between 1990s and 2017. In the third section, we present the evolution of value added (VA) generated by the manufacturing sector, employment, labor productivity, real wages, and income distribution in each branch of industrial activity classified according to its technological characteristics. In the fourth

The Manufacturing Sector in Argentina at the Beginning…

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section, we study the evolution of trade balance of the manufacturing sector as well as its degree of dependence of foreign machineries and equipment. In the fifth section, we underline the main characteristics of the industrial policies during the period under analysis and the effects that they have on the performance of the sector. Finally, in the sixth sec-tion, we present the main conclusions of the analysis and the challenges that the sector will face in coming years.

2 Argentina at the Beginning of the Twenty-First Century

At the end of the 1990s, Argentina was going through its worst economic and social crisis. It was the result of the perfect application of the Washington consensus and the structural adjustment plans recom-mended by the International Monetary Fund (IMF) and pleasantly applied by Menem and De la Rua’s administration. The structural trans-formations of the economic model generated a decline in the GDP of almost 20% between 1998 and 2002 and a subsequent increase in the rates of unemployment, underemployment, poverty, and indigence, which reached some of the highest values in their history.

With the economy collapsed, President Fernando De la Rua was forced to resign by a set of popular protests in December 2001. The country had then five presidents in 11 days,1 abandoned the convertibility regime which has tighted the peso to the dollar for almost a decade, declared the cessation of payments of its external debt, and various quasi-currencies arose and began to be used in different provinces of the country. Eduardo Duhalde assumed the presidency of the country on January 2002 with the idea to complete the original mandate of De la Rua and appointed Roberto Lavagna as the Ministry of Economics. Duhalde’s administra-tion imposed export duties on agro-industrial and hydrocarbon exports,

1 On the night of December 21, 2001, Fernando De La Rua resigned and was succeeded by Ramón Puerta, who resigned on December 23, 2001. Puerta was replaced by Rodriguez Saa, who resigned on December 30, 2001, and was succeeded by Eduardo Camaño, who remained in office only two days. On January 1, 2002, Eduardo Duhalde was named president.


11

ordered the so-called asymmetric pesification of debts and deposits,2 pesi-fied and froze tariffs on privatized public services, introduced a series of regulations in the foreign exchange market, and maintained the partial cessation of payments of the external debt, in a framework of strong mis-trust with the IMF and the neoliberal regime.

The new presidential elections of May 2003 consecrated Néstor Kirchner, a politician who had been governor of the province of Santa Cruz since 1991 and had won the governor’s office three times in a row. During the first years of his presidential administration, Kirchner main-tained a marked continuity with the economic policy of Duhalde by keeping Lavagna as minister of economy, who was very valuable in the normalization of the functioning of the financial system and a negotiated exit from the default. Kirchner kept a preference for a depreciated real exchange rate, which improved the competitiveness of Argentine prod-ucts, maintained the pesification of the tariffs of privatized public ser-vices, and pursued the redistribution of part of the agrarian and oil income into the rest of the society (Kulfas 2016).

The 12 years of Kirchner’s government can be divided in three eco-nomic periods that correspond fairly close to each presidency: 2003–2007, 2008–2011, and 2012–2015. During the first period, strong incentives to aggregate demand were set in a framework of high levels of idle capac-ity as well as good conditions on the external markets. Thus, there was a strong increase in real public spending, which grew by 82%, and in par-ticular of public investment (mostly in infrastructure), which registered an exponential growth which changed a long trend of more than 30 years of poor performance. Likewise, the government promoted a deep re- composition of the minimum wage—with an increase of 50% in nomi-nal terms between June and December of 2003 and subsequent readjustments up to 2006 inclusive—and of the minimum retirement benefits. Likewise, in 2005 the government implemented the Pension Inclusion program, which incorporated 1.6 million elderly people into the retirement system within two years.

2 The debts denominated in dollars were pesified 1 to 1, while the deposits denominated in dollars were pesified at a rate of 1.40 pesos per dollar (both being updated for inflation by means of the reference stabilization coefficient [CER]), and the state payed and covered the difference.


12

This boost to domestic demand led to a rapid recovery of the domestic market, especially in the manufacturing sector and the construction indus-try. As a result, production and employment levels increased rapidly, and a five-year period of great business dynamism was inaugurated, especially in small- and medium-sized enterprises (SMEs). The tendencies to eco-nomic recovery outlined in the last months of the Duhalde’s government were consolidated in the following years: between 2003 and 2007, the GDP grew at average annual rates above 8% and the manufacturing sector achieved an annual average growth rate of 10.40% (see Fig. 1).

During this period and in contrast to the 1990s, when a large part of the productivity increases were explained by the increase in unemploy-ment, economic growth coexisted with a highly dynamic job creation rate (unemployment went from 22.5% in 2003 to around 9% in 2007). Moreover, the increase in the economic activity brought with it an increase in fiscal revenues: the expansion of the domestic market pushed tax collection linked to consumption, and the rapid creation of formal jobs allowed to multiply the income derived from contributions to social security (Porta et al. 2017, 111).

-3,13

8,62

3,57

0,40 0,52

-5,64

10,40

3,73

-1,42 -1,21

-8

-6

-4

-2

0

2

4

6

8

10

12

%

GDP VA Mfg sector

2003-2007 2008-2011 2012-2015 2016-20171998-2002

Fig. 1 Average growth rates of GDP and value added of the manufacturing sec-tor, 1998–2017, selected periods. Source: Own elaboration using INDEC


13

Another particularity of the first Kirchner administration was a cur-rent account surplus that averaged 2.9% of GDP. Since the country also had a slight average deficit of the capital account during those years, the strong surplus of the current account allowed for a rapid accumulation of international reserves which passed from just under 9000 million dollars in July 2002 to more than 46,000 million dollars in December 2007 (Santarcángelo 2013). The main cause behind this trade balance was the improvement in the terms of trade, which raised 25% between 2003 and 2007 centrally due to the rise in commodity prices.

Financial normalization and the exit from default was achieved by Kirchner’s administration in February 2005. As a result of the negotia-tions undertaken, the country resumes payment on 76% of the 82 billion dollars in sovereign bonds that defaulted in 2001 (Cifra 2009). This suc-cessful policy was deepened in January 2006 (Lavagna was no longer the ministry of economy)—when Kirchner ordered the cancelation of the full debt with the IMF with an anticipated payment of 9530 million dol-lars. As a result of these strategies, external indebtedness fell substantially throughout the first period and went from representing 129% of GDP in 2003 to 48% in 2007. Debt relief was one of the structural changes achieved by the Kirchner’s administration and was one of the fundamen-tal pillars of management. Not only resources were released to execute and finance public and economics policies but also the conditionality of the multilateral credit agencies was avoided, and therefore, greater auton-omy in economic policy was gained (Porta et al. 2017).

After a strong recovery of real wages throughout Néstor Kirchner’s administration, the scourge of inflation began to whip the country. The situation was worsened because the government took the bad decision to intervene the National Institute of Statistics and Census (INDEC) and started manipulating the price statistics. As a corollary, the economy stopped having an indicator that allows the correct estimation of infla-tion, which led the economy to set prices guided by their own expecta-tions, which clearly fueled the dynamics of inflation.

In October 2007, Cristina Fernández de Kirchner won the president election with 46% of the votes. The economy was growing at annual rates above 8% per year, and showed a completely different appearance to that of May 2003. New challenges were already evident, and the most notori-


14

ous was inflation, which, by 2007, reached 25% per year and slowed down the growth rate of real wages and the improvement in income distribution.

The annual average growth of the economy during this whole second period (2008–2011) was significantly lower than in the previous one: 3.57% and 3.73% for GDP growth and the manufacturing sector, respec-tively (Fig. 1). However, the decline in the level of growth was not homogenous and we can clearly differentiate two sub-periods: 2008–2009 and 2010–2011. In the former the average growth rate was −1.86% mainly due to the effects of the global financial crisis of 2008, while in the latter the growth rate was similar to the 2003–2007 period and achieved an average rate of 8.06%.

The sub-period 2008–2009 was strongly influenced by four main events. First, as we already said, the country received the impact of the global financial crisis of 2008 which was the worst financial crisis since the Great Depression of the 1930s. The government responded to the new scenario with a series of fiscal and trade management policies which proved to be effective (Santarcángelo et al. 2016). Regarding the fiscal policies, real primary public spending increased significantly after the cri-sis driven by public investment and the generation of new jobs in the public sector and a raise in real wages on the same sector.

On the other hand, in a context of low global demand and aggressive practices in the industrialized world and other emerging countries due to the global crisis, a potential flood of imports was foreseeable. Thus, the state decided to apply a series of instruments such as Non-Automatic Licenses (LNA) in certain branches to protect its markets. This non-tariff barrier to trade was relatively effective in protecting production in domes-tic sectors but eventually derived in a series of litigations with its trade partners, especially with Brazil. Both measures, the fiscal and trade man-agement policies, were crucial to the rapid and accelerated economic recovery and are behind the countries’ performance during the years 2010 and 2011.

Second, in March 2008, Fernández de Kirchner’s government intro-duced a new sliding-scale taxation system for agricultural exports, effec-tively raising export duties on soybean exports to 44% from 35% at the time of the announcement. The aim was to raise government funds for


15

social investment by increasing the government’s share of returns from rising world grain prices, and also to reduce domestic food prices in order to decelerate inflation.

The measure provoked an agricultural strike, lockout, and roadblock commanded by four organizations of the agricultural sector: Sociedad Rural Argentina, Confederaciones Rurales Argentinas, CONINAGRO, and Federación Agraria Argentina. As a result of the conflict, President Fernández de Kirchner sent to Congress a bill on withholding taxes on grain exports and compensation to small producers, so that the Legislative power will ultimately decide the situation. After being approved by the Chamber of Deputies, the bill had a tie vote in the Senate and the Vice President of the Nation, Julio Cobos, voted against the bill. Next day, the President of the Nation ordered the cancelation of Resolution 125/08.

Third, in October 2008, the government nationalized the Administrators of Retirement and Pension Funds (AFJP), which generated an important mass of new contributors to the national state. The measure also meant that the National Social Security Administration (ANSeS) had a stock of assets equivalent to 10% of GDP, composed mostly of public debt securi-ties and shares in large private companies, with the subsequent state par-ticipation in the directories of these firms (Porta et al. 2017). The nationalization of the pension system reversed one of the most significant structural reforms implemented by the neoliberal project in the 1990s. As a result of its nationalization, the system was once again conceived as a solidary system financed through intergenerational transfer, in which the workers of the present fund the retirements of the workers of the past.

Fourth, with this new flux of funds, President Cristina Fernández de Kirchner further enhanced the role of ANSeS in social policy by signing the Pensions Mobility Law in 2008, which provides for semi-annual increases in the benefits schedule, thus formalizing a policy adopted by her husband and predecessor, Néstor Kirchner. Moreover, the govern-ment also enacted the Universal Childhood Entitlement (AUH) in November 2009. The benefit, contingent upon proof of a child’s vaccina-tion and enrollment in school, reached 30% of children, and directly resulted in a reduction in the nation’s overall poverty rate from 26% to 22.6% within a year of its implementation.


16

The stimulus policies applied and the slow recovery of the world from the global crisis led the economy to resume growth during the last two years of the second Kirchner’s term. During 2010–2011 the economy was able to grow again accompanied by the creation of new jobs, so that unemployment fell to 7.1% in 2011, while real wages experienced a sig-nificant rise almost throughout the economy. With the economy driven by both good international conditions and a markedly expansive fiscal policy, 2011 was a year of consumer boom, and significant increases in the level of investment and the amount of exports and imports.

During these years, the government agenda began to consider prob-lems of productive development since it was clear that the processes of import substitution and promotion of non-traditional exports were very limited and the only serious stimulus came from keeping a competitive exchange rate (Fernández Bugna and Porta 2008, 2011). The economy showed clear bottleneck problems in infrastructure, transportation, and especially in the supply of energy, aggravated in view of the strong increase in residential and industrial demand (Coatz et al. 2015). Altogether these elements limited the systemic competitiveness of the economy.

Moreover, the characteristics of the economic growth of this period were different from the ones registered under Néstor Kirchner presidency. The exchange rate appreciated quickly; inflation accelerated driven by a further rise in international prices and the inability of the administration to anchor expectations (ending up around 25%); the fiscal surplus faded away; and the dynamism of the new creation of companies disappeared. The era of the competitive exchange rate and twin surpluses—external and fiscal—that had been a “brand” of Kirchner and Fernández de Kirchner’s economic management came to an end (Porta et al. 2017).

The situation became even more complex when on the morning of October 27, 2010, Néstor Kirchner passed away from a heart attack at the age of 60. This death was a blow with irremediable consequences for Kirchnerism and allowed the opposition to deploy a fierce attack on Cristina Fernández and her economic policies that were increasing over time.

In 2010, a second debt restructuring brought the percentage of bonds under some form of repayment to 93%, though ongoing disputes with holdouts remained and, as we will see in coming pages, ended up being a real problem for the government during its final administration. Finally, in


17

a context where the government was decided to sustain the level of aggregate demand, the monetary policy also assumed an expansive bias by establishing negative interest rates in real terms. This fueled a process of strong portfolio dollarization and capital flight increased significantly peaking in 2011.

Cristina Fernández de Kirchner won the re-election at the end of 2011 and although the growth dynamics had been recovered, the tensions already mentioned were recognized by the government who decided it was time to address some of the problems of the productive structure by what was defined as “fine tuning” of the economy. This notion recognized the need to introduce changes in economic policy in order to prevent the accumulation of imbalances which could compromise the goal of growth with redistribution of income. Despite this, the lack of planning, the internal disputes among different groups of the Kirchner administration, as well as the resurgence of certain structural problems led to a period of sharp deceleration of economic growth and even decline in the VA gener-ated by the manufacturing sector. As we can see in Fig. 1, the average annual growth rate of the economy and the VA of manufacturing sector for the period 2012–2015 were 0.40% and −1.42%, respectively.

One of the most debated issues during the last term of Kirchner’s administration was the management of the exchange rate. Although since October 2011, the Federal Administration of Public Revenues (AFIP) had imposed the obligation of a prior authorization by this agency in order to purchase foreign currency (dollars), a week after the beginning of the third presidential term, the exchange controls were tightened by increasing the requirements but without specifying its scope or condi-tions, which caused many protest and discomfort (Porta et al. 2017, 127). The restriction was informally known as “Cepo cambiario” (exchange clamp) and generated a parallel (black) market for dollars.

During this period an important factor that influenced the path of economic growth of Argentina was the weak performance of Brazil, the main recipient of the country exports, which had significantly slowed down its annual average growth rate, going from 7.5% in 2010 to 2.7% in 2011. The decrease in consumption and the level of activity of the Brazilian manufacturing sector, one of the most affected by the Brazilian crisis, had a direct impact on the Argentine industry. The economic slow-down in Argentina was correlated with a significant decrease in the rate


18

of growth of the investment rate throughout 2011, which contributed to a slower rate of expansion of aggregate demand.

Regarding the structural problems, at the beginning of the third Kirchner’s term, the country suffered a sustained appreciation of the exchange rate, a growing fiscal deficit, important bottlenecks in the energy sector, deterioration of the trade balance, inflation was on the range of 25% per year, and a decline in international reserves. In particu-lar, the fall in reserves was largely explained by three factors: first, an enormous capital flight (almost 21,000 million dollars in 2011); second, a significant rise in remittance of profits by transnational and multina-tional companies (went from 633 million dollars in 2003 to 7331 million in 2011); and third, a rise in the level of fuel imports during the year (in 2011 Argentina accumulated a sector deficit of 3100 million dollars).

Regarding the energy issue, the combination of nil or meager invest-ments after the privatizations carried forward during the 1990s, the flaws of the respective regulatory frameworks, the strong economic growth of the previous decade, and the subsequent expansion of demand quickly eroded the trade balance of the sector. In April 2012, the gov-ernment decided to nationalize by law the country’s main oil company Yacimientos Petrolíferos Fiscales (YPF), which had been privatized in 1999. As a result, Argentina expropriated 51% of the Spanish Repsol shares, and introduced changes in board of directors as well as establish-ing an ambitious investment program to produce energy. The strategy privileged the development of non-conventional hydrocarbon areas, for which signed a controversial agreement with the American company Chevron to explore the Vaca Muerta area, one of the largest and highest quality reservoirs of unconventional hydrocarbons in the world (Porta et al. 2017). In spite of this measure, the investment strategy led by YPF was not followed by the rest of the oil companies, so the requirements of imports continued to grow.

After the rise in imports and its potential negative effects on external accounts and employment, the government decided to apply quantitative restrictions to trade establishing at the beginning of 2012, the Sworn Anticipated Declarations of Importation (Declaración Jurada Anticipada de Importaciones [DJAI]). Although the objective of the DJAI was a preventive monitoring of the state of the vast majority of imports, its


19

effect on the economy was ambiguous. On the one hand, it protected the level of activity and employment in some industrial sectors very exposed to exchange rate appreciation; on the other hand, it generated shortages of inputs and difficulties to sustain production in other sectors generating many complaints.

During 2012 and 2013 several measures were taken by the govern-ment to stimulate the economy. First, in March 2012, the Central Bank reformed its organic charter and authorized the monetary authority to promote not only monetary and financial stability but also policies to promote employment and economic development with social equality. Second, the government implemented several programs aimed to coun-terbalance the fall in domestic demand such as “Precios Cuidados” (Care Prices), a program for price control of goods of basic necessities; the pro-gram “Ahora 12” (Now 12), a financing program for mass consumption in 12 installments; the “Pro.Cre.Auto”, an automotive credit program for the purchase of automobiles; the “Pro.Crear”, a program intended for non-owner families to have their first home; and the “Progresar”, a stu-dent support program which provided a subsidy to encourage vulnerable youth between 18 and 24 years of age to advance in their studies. Finally, the recovery of the national railway system, agonizing after decades of disinvestment, was also launched, following a major railway tragedy where 51 people died and more than 702 were injured.

In spite of all these measures, the economy did not recover its previous growth path and new problems arose: in particular, the resurgence of the external constraint. Historically in Argentina, as in most Latin American countries, periods of industrial expansion have traditionally been limited by external constraints due to the strong demanding importation of local industrial production which clearly appeared in 2013.3 As a way of deal-ing with this problem, the government decided to abandon its core policy of de-indebtedness and take credit again in the capital markets. In order to carry this out, in the first part of 2014 the government solved the

3 It is important to clarify, as will be seen below, that the increase in imports of goods was also added in particular by energy imports, capital flight, the remittance of profits, and the drainage of dollars associated with tourism.


20

differences with Repsol (for the nationalization of YPF), and reached an agreement with the Paris Club for unpaid debts to member countries for around 9690 million dollars.

However, in June 2014, the Supreme Court of Justice of the United States ruled in favor of the holders of defaulted bonds (holdouts, mostly vulture funds) that had refused to participate in the debt restructuring processes in 2005 and 2010. If Argentina failed to comply with the sen-tence (a claim of 1300 million dollars), it enabled the judge to seize the regular payments to those creditors who had agreed to the restructuring; while in turn, the payment of that claim could trigger the so-called RUFO clause,4 which was effective until December 31, 2014. As a result of this, President Fernández de Kirchner decided not to pay the holdouts and report the action of the vulture funds, getting the support of different national parties and also some international agencies such as the United Nations which condemned the speculative behavior of the vulture funds.

The decision not to pay the vulture funds prevented Argentina from returning to borrowing in the international market and to secure funds to solve the external constraint. As a result, the final term of the Fernández de Kirchner administration saw Argentine economy went through a marked stagnation fueled by capital flight, the fall in world demand, the energy deficit, the requirements of industrial imports, the lower competi-tiveness of exports in certain branches, and the remittance of profits (Porta et al. 2017, 133).

In October 2015, Mauricio Macri, who came to be governor of the city of Buenos Aires, was elected president by the coalition of Cambiemos, after a tight triumph in the second ballot. Although throughout the pres-idential campaign Macri promised that he would not significantly change the model of accumulation of the country, when he came to power, he failed to fulfill most of his campaign promises and returned the Argentine economy to neoliberalism. It has been only two years in office, but Macri’s government has been extremely efficient in implementing once again an accumulation model based on financial valorization, economic opening, financial deregulation, and the elimination of state intervention in the

4 The RUFO (Rights Upon Future Offers) is a clause used in certain contracts, in which a party who has agreed to contractual terms gains certain rights if other parties in the future obtain better terms.


21

economy. The results as in the past have been a drastic redistribution of income in favor of the owners of the means of production and the wors-ening of the living conditions of the vast majority of the population. As we can observe in Fig. 1, the average annual growth rate of the economy and the VA of manufacturing sector during the period 2016–2017 were 0.52% and −1.21%, respectively.

One of the first and most important measures taken by the Macri administration was the elimination of the “exchange rate clamp” (cepo cambiario) which resulted in a significant devaluation of the peso by 45% at the beginning of 2016 (the price of the dollar went from 9.76 pesos to 13.95 pesos). The devaluation of the peso was a constant feature of this administration, and in September 2018 one dollar equaled 40 pesos, a 309% rise in the exchange rate since the new administration assumed the presidency.

A few months later, on April 2016, the government decided to pay in full the debt to the “vulture funds” by issuing a bond for 16,500 million dollars. This agreement is unprecedented since the government did not negotiate any reduction to the amount set by the court of the United States, and it implies a clear regression in all future processes of sovereign debt restructuring of developing countries.

Macri’s administration not only went back into debt, but during the first two years of his administration took debt at astronomical levels. The internal and external public debt, in pesos and foreign currency, increased by more than 150,000 million dollars from the beginning of the admin-istration of President Mauricio Macri until July 2018. It is interesting to note two things: first, that up to this stage, the worst period of Argentinean indebtedness was during the military dictatorship of 1976–1983 where the country went into debt by 78,000 million dollars and during that period Argentina fought the Malvinas war (1982). Second, the country became indebted again with the IMF, which has enormous repercussions in terms of economic policy since this institution not only does not favor economic development, but in exchange for its financial rescue, recom-mends economic policies that prevent it.

In line with the recommendations of the Washington Consensus, the gov-ernment eliminated withholdings; increased tariffs for public services, tolls, energy and transport fares, and bus and train tickets; and eliminated controls on prices and many of the programs deployed by Kirchnerism to pump up


22

aggregate demand. The sworn declarations of import needs (DJAI) were also eliminated and replaced by an Integral Automatic and Non-Automatic Import Monitoring System. Moreover, in a context where the prices of drugs and prepaid services increased, the government reduced the amount of medi-cines that are delivered without cost to the beneficiaries of the Medical Integral Asistency Program (PAMI).5

Finally, although the government argued that inflation problems were the easiest to solve, inflation remains an important problem throughout Macri’s administration, getting annual values averaging around 34.1% in 2016 and 2017.6 Moreover, since 2016 the Ministry of Labor intervened in collective bargaining to stop the demand of Unions to increase real wages and also started with a policy of mass layoffs of state workers as well as the deterioration of their working conditions. This was particularly relevant in the case of the National Council of Scientific Research and Technology (CONICET) that saw not only the reduction in the number of new researchers incorporated per year to the institution but also a drop in the assigned budgets to conduct research.

As a result of these economic policies, which led to the systematic indebt-edness of the country, the fall of resources coming from taxes, the redistri-bution of income in favor of capital, and the worsening of living conditions of the working class, the country is now immersed in a stagflation process whose impacts on the industrial sector have been very negative. In the next section we try to grasp a detailed account of this process and the perfor-mance of the manufacturing sector since the mid-1990s to the present.

3 The Manufacturing Sector in Argentina

Argentina began using industrial policy at the beginning of the 1930 when the state started to intervene in the economy with the objective to spur the industrialization process. During these years, the automotive industry was the core of the Argentinean manufacturing sector; it was highly integrated

5 PAMI is a health plan for retirees and pensioners, people over 70 years without retirement, and ex-combatants of Malvinas that operates in Argentina under federal state control.6 The official estimations for 2018 done in August by the government project inflation of the year to be around 45%.


23

and, due to different stimulus regimes, caused the transformation of a broad set of industrial branches that provided inputs. As in other industri-alization processes, the state played an extremely active role as an actor that led the development process, investing in infrastructure and creating insti-tutions capable of boosting the country’s industrial development. Several agencies linked to science and technology activities were created; a develop-ment bank and the financial system was used centrally as an instrument to finance industrial development (Santarcángelo 2011).

The dictatorship caused a radical transformation in the development of the country and particularly on the manufacturing sector. The military coup that seized power in 1976 sought to eradicate the foundations that supported the model of industrial development and to that end used a vast set of economic as well as repressive policies that end up costing the lives of 30,000 disappeared. It is important to note that the deindustrial-ization process expelled for the period 1976–1990 almost 1 million workers (almost 50% of the total industrial labor force of 1976) which led to a rise in the informal sector (Basualdo 2006). The main result of this transformation was the disarticulation of the industrial working class that not only stopped being a main actor but also saw how the world in which they lived was radically transformed.

From 1976 to 1983, the production, employment, and real wages of the manufacturing sector fell by 10%, 35%, and 40%, respectively (Basualdo 2006). Together with these performances, there was also a pro-cess of structural change in the role of the different industrial branches. The sectors producing food and beverages, as well as petroleum deriva-tives, went from explaining a little more than 30% of the industrial prod-uct in 1976 to 55% in 1990; while at the other extreme, the production of machinery and equipment, which accounted for 22% of the product, end up the period in 1990 representing only 13%.

The deindustrialization process carried out by the military dictatorship was continued by the democratic governments of the 1980s and 1990s, and as a result, emerged an industrial sector whose structure was increas-ingly articulated around a small group of activities that were based on the exploitation of comparative natural advantages (basically, the production of food and beverages and, to a lesser extent, that of petroleum deriva-tives), and/or had “institutional” privileges (such as the case of the auto-motive industry and consumer electronics whose performances were


24

intimately associated with the existence of promotion and protection regimes), as well as the elaboration of certain intermediate inputs of widespread use (in particular, those linked to the chemical and steel industries). In these markets a majority proportion of production was controlled by a small number of large companies, which in many cases were owned by foreign capital (Schorr et al. 2005).

Throughout the 1990s (and especially intensive since 1995) there was a strong process of concentration as well as an increase in the relevance of the foreign capital in the economy. In order to evaluate the former, we present in Fig. 2 the evolution of total VA and the share of VA of the 500 largest firms7 to total VA for the period 1993–2001.

7 The information of the 500 largest firms is provided by the Encuesta Nacional a Grandes Empresas (ENGE) realized by the Instituto Nacional de Estadísticas y Censos (INDEC) which provides an integrated set of information regarding the gross value of production, VA, gross fixed capital forma-tion, occupation, wages, and transactions with foreign countries, among other relevant variables. The selection of the 500 largest companies in the country is based on the gross value of its produc-tion, which in turn delimits its size.

%

78,3

100,0

88,1

19,20

23,30

15

17

19

21

23

25

27

29

60

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80

85

90

95

100

105

1993 1994 1995 1996 1997 1998 1999 2000 2001

VA

(Inde

x 19

98=1

00)

VA (1998=100) VA 500 / VA total

Fig. 2 VA evolution and share of VA 500 biggest firms and VA total, 1993–2001, in index number (1998 = 100) and percentage. Source: Own elaboration using ENGE (INDEC)


25

As we can see, VA has a rising tendency from the beginning of the 1990s until 1998 when it grew 22.7%. After that peak, Argentina entered into its recession phase ending up in 2001 with levels of VA generated by the economy similar to the ones registered in 1996 and around 12% less than the values shown in 1998. However, when we study the level of concentration of the economy, there is an upward trend throughout the period that intensifies during the crisis. Between 1993 and 2001, the VA generated by the 500 largest firms was concentrated by 21% and the 500 largest firms of the economy explained 23.3% of total VA. This indicates that, already in the convertibility crisis phase, the 500 largest companies in the country were growing its relevance as the future core of the VA expansion that occurred in the following years and their relevance in the economy was strengthened.

A similar trend is shown by the firms that are part of the 500 largest corporations and operate in the manufacturing sector. The convertibility crisis brought with it a significant increase in the degree of production and sales concentration of the largest corporations of the industrial sector which went from representing 40% of gross production value in 2000 to 62% in 2002 (Santarcángelo and Perrone 2012, 11).

Similarly, the evolution of the role of foreign capital in the economy is presented in Fig. 3 where we show the 500 largest companies according to the origin of capital for the same period (1993–2001).

As we can observe, during the 1990s a significant transformation occurred regarding the origin of capital of the 500 largest firms. National firms showed a declining tendency that went from representing 56.2% in 1993 at the beginning of the convertibility regime and end up being only 35% in 2001. The opposite trajectory was shown by the foreign capital which went from 43.8% and end up being 65% in 2001. This significant increase in the weight of foreign capital in the business leadership of the economy was primarily due to the incorporation of foreign firms as a result of the privatization process of the beginning of the 1990s, and the new law of foreign investments issued in 1993 (Law 21.382/1993) which gave foreign capital almost the same rights national capitals already had. Likewise, given the high level of economic concentration, the increase of the power of foreign capital in the economy supposes, on the one hand, an increase in the drainage of resources that everyday leaves the country as


26

remittance of profits, and on the other hand, implies that a large part of the companies that are at the core of the development path of the econ-omy have a dynamic of accumulation that is determined outside of Argentina. This fact, as the dependency theory clearly showed, is not at all a minor issue and if the state does not control it, could severely condition the possibilities of future development of the country (Dos Santos 2003).

As a result of these transformations, the 1990s saw an industrial sector where the highest growth, relevance, and business leaders were located, in most cases, in the early stages of manufacturing processing (Azpiazu and Schorr 2010; Santarcángelo 2013). The manufacturing sector therefore pre-sented low dynamism in terms of generation of VA, and a marginal contri-bution to the creation of jobs and productive linkages (Schorr et al. 2005).

In order to deepen the analysis, we study the industrial performance of the last years by classifying industrial branches according to its techno- productive particularities and the relative factorial intensity of each of the activities. Using Porta et al.’s (2014) methodology (which is based on Katz and Stumpo 2001) and classifying all groups according to the International Standard Industrial Classification of All Economic Activities

56,2

35

43,8

65

0

10

20

30

40

50

60

70

1993 1994 1995 1996 1997 1998 1999 2000 2001

%

National Foreign Capital

Fig. 3 Five hundred largest companies according to the origin of capital, 1993–2001, in percentages. Source: Own elaboration using ENGE (INDEC)


27

(ISIC Rev. 3.), we focused only on section D (Manufacturing), which includes divisions 15 to 37, and then classified all groups of branches to three digits in six main categories.

The resulting categories were food, beverages, and tobacco (which includes the groups 151, 152, 152, 154, 155, and 160); labor intensive (groups 181, 191, 192, 201, 202, 221, 222, 281, 289, 361, and 369); natural resource intensive (groups 171, 172, 173, 210, 261, and 269); chemical and basic metals (groups 241, 242, 271, 272, and 273); automo-tive (groups 251, 252, 341, 342, and 343); and capital intensive (groups 291, 292, 293, 300, 311, 312, 313, 314, 315, 319, 322, 323, 331, and 332). These categories allow us not only to characterize the degree and depth of transformations registered during the period under analysis, but also to clarify if the changes registered implied (or not) a transformation in the dominant model of productive specialization and trade of the sector.

The first element that we study using these categories corresponds to the evolution of the VA generated by the industrial sector. The result is presented in Fig. 4. As we can observe, the productive dynamics that are

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

180,0

200,0

1997

1998

1999

2000

2001

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Fig. 4 VA in the manufacturing sector by technological content, 1997–2017 (1997 = 100). Source: Own elaboration using INDEC


28

registered correspond quite closely with the different presidential periods of these years. The first period goes from 1998 to 2002 and covers the last year of the convertibility regime until the collapse and the crisis registered at the end of the century. All branches show a decreasing trend in their generation of VA and the industrial average fell by 35.5%, while the most negatively affected sectors were the intensive branches in engineering closely followed by the labor-intensive ones. The second period goes between 2003 and 2007 and corresponds to the presidency of Néstor Kirchner. As we can see, the industrial VA grew very significantly at the manufacturing level (54.2%), which implied an 84% increase in relation to the VA that existed in 2002. Although as before, all the branches clas-sified according to their technological content show the same growing trend; the performance of the automotive branches should be highlighted since they grew above the manufacturing average and end up in 2007 with a VA 10% above industrial average.

The third period goes between 2008 and 2011 and exhibits two trends: first, a strong deceleration in the rate of growth of all sectors largely due to the global financial crisis of 2008, and second, the subsequent recovery in the VA generated by the sector in 2010 and 2011. What appears evident in this dynamic is the increase in the heterogeneity of the sectors that can be seen in the increase in the dispersion of the tendencies of the industrial branches classified by their technological content. We can separate them in two groups. The first one consists of food, beverage, and tobacco; chemical and basic metals; and automotive branches and exhibits a rela-tively higher dynamics of VA growth than the manufacturing aggregate; and the other group has the rest of the sectors (natural resources, labor intensive, and intensive branches in engineering) with a growth dynamics relatively lower than the industrial average. Taking the whole third period into analysis, the average VA growth of the manufacturing sector was 19.7%, while the chemical and basic metal branches showed an extraordi-nary performance and grew 35% in the same period and ended up in 2011 with values that are 70% higher than the ones registered in 1998.

The fourth period goes from 2012 to 2015 and shows a tendency to stagnation that is consistent with the economic problems that the econ-omy registered during the last Fernández de Kirchner’s term. In spite of this, the branches that had a relative performance above the industrial


29

average exhibit slight growth rates, while those with the worst relative performance show even bigger falls in the manufacturing VA generated during this period. Finally, the last period is during 2016–2017 under Macri’s administration. As we can see, the return to neoliberalism and financial valorization provoked that the country registered in 2016 the worst fall in the industrial VA since the crisis of 2001 (the fall was almost 12 p.p.). Although there was an improvement in 2017 in the VA gener-ated by all industrial branches, the trend during Macri’s administration was a declining tendency and the VA generated ended up in aggregate terms with values similar to 2011.

Analyzing the whole period, we can see that the technological classifi-cation of the branches allows us to distinguish two very differentiated groups: a first group which has very high growth rates and ends up with VA between 62% and 79% higher than the values of 1998; and other branches whose growth for the entire period is only between 1.6% and 13% higher than those registered before the last year of economic growth of the convertibility regime (1998). This accounts for a significant struc-tural heterogeneity of the Argentine economy where the productive dynamics and its capacity to generate VA are extremely dissimilar within the industrial framework.

Once the evolution of the VA generated by the manufacturing branches is clear, it is pertinent to analyze the employment performance in each of the industrial branches. The information is shown in Fig. 5.

As we can observe in the figure, the general trend is similar to that registered by the generation of VA but with some particularities. There is a first period of falling employment from 1998 to 2003 (around 20% of the manufacturing sector) which left the sector with 1,643,000 jobs. It is important to note that the recovery of the economy registered in 2003 in the manufacturing VA was driven first by the use of idle capacity, and only from 2004 the sector started to generate new employment. Since that year there has been a strong growth in industrial employment up to 2008, achieving an aggregate level of growth of 68% with respect to the values registered in 2003. A special mention deserves the performance of the intensive branches in engineering that grew at rates above the average increasing its level of employment by almost 82% since 2003 (an increase of 75,000 new jobs).


30

After 2008, the level of employment of the manufacturing sector vir-tually stagnated with values close to 45% of the ones registered in 1997. However, different dynamics are also registered according to the techno-logical content of the analyzed branches. On the one hand, the intensive branches in engineering show a fall in employment from 2008 to 2010 but then they recovered their dynamism and reached their maximum level of employment in 2012 (190,000 workers). A similar dynamic but with a lower relative rhythm was registered by the chemical and basic metals branch that showed a fall in the generation of employment only in 2010 (mainly due to the global financial crisis) and then recovered its pace and reached its maximum records in 2013–2014 (around 241,000 workers). Food, beverages, and tobacco sector has a weak performance since 2008 where employment stagnates at values close to 30% higher than 1998 but 12% lower than those achieved in 2007. Finally, labor- intensive branches show the highest decreasing trend from 2012 to 2017, where the branches on this sector lost close to 100,000 jobs. In this

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Fig. 5 Employment in the manufacturing sector by technological content, 1997–2017 (1997 = 100). Source: Own elaboration using INDEC


31

respect, it is important to note that the labor-intensive and food, bever-ages, and tobacco sectors account on average for around 70% of all industrial salaried employment.

Combining the analysis of VA and employment in the manufacturing sector allows us to evaluate the evolution of labor productivity of the industrial sector (Fig. 6). As we can see, the average productivity of labor in the industrial aggregate decreased sharply (−35%) between 1997 and 2002, due to the more sharply collapsed VA generation than the contrac-tion in salaried employment (−35% and −10%, respectively). The sub-sequent recovery was more than significant, evolving strongly and positively—with the exception of 2009—and reaching in 2011 a level more than 35% higher than in 2002, although only 2% higher than in 1997. If we take a broad picture of the whole period under analysis, we can see that labor productivity for the manufacturing sector has virtually stagnated which shows that the sector did not substantially improve its capacity to produce manufacturing VA given its employment evolution.

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Fig. 6 Labor productivity in the manufacturing sector by technological content, 1997–2017 (1997 = 100). Source: Own elaboration using INDEC


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This situation highlights the enormous cost that the crisis of 2001 had for the Argentine economy and for the manufacturing sector in particu-lar; that in spite of having annual growth rates of enormous magnitude in the industrial sector, it has only managed to return to levels of industrial productivity that the country had in the mid-1990s. In this sense, it is important to note that during the entire period under consideration, most of the developed and emerging countries increased their industrial productivity more than Argentina (Porta et al. 2014, 33), implying that the evolution of labor productivity in the manufacturing sector has not been enough to reduce the accumulated gap in international terms.

As it happened with the evolution of VA in the sector, the industrial branches classified by their technological content can be separated in the same two groups as before. The first one, which includes food, beverage, and tobacco; chemical and basic metals; and automotive branches, exhib-ited a relatively higher performance and ended up in 2017 with values between 15% and 30% above the manufacturing aggregate. The second group, composed of natural resources, labor intensive, and intensive branches in engineering, ended up with values between 25% and 40% below the manufacturing aggregate. Although these sectors were able to recover from the values, they had the crisis of 2001/2002 and they were not to return to the levels of productivity registered by these branches during the mid-1990s.

The capacity of the manufacturing sector to generate new employment had important impacts in terms of income. To account for this phenom-enon, in Fig. 7 we analyze the evolution of wages in the main industrial branches classified by technological components. As we can see, we can distinguish five general stages of real wages in the manufacturing sector that all sectors followed during the period under analysis. The first one goes from the end of the 1990s until 2001 and showed that real wages did not suffer significant transformations while the economic crisis was developing and getting worse in the country. The second stage corre-sponds to the impact that the abandonment and devaluation of the peso had on real wages of workers, and in particular of the industrial sector, which as we can see, lost around 20% between 2001 and 2002.

The third stage started in 2002 and exhibited a strong growth path and recovery of real wages in the manufacturing sector due to the extraordi-


33

nary annual growth rates of the sector and the increase in the level of employment. In this stage that extended until 2006, the industrial wages recovered the losses from the crisis and surpassed 20% of the levels of the mid-1990s. The fourth stage started with a slight stagnation during 2007, largely due to the rise of inflationary prices, and then consolidated a ris-ing trend of wages that reached in 2012 its highest value for the series (51.4% above the 1997 level). Finally, between 2012 and the present, real wages exhibited a strong declining tendency, which become more acute during Macri’s administration (60% of the decline was in 2016–2017).

Taking a look of the whole period and ordering the branches by their technological content there are two central issues. First, that the real wage of the manufacturing sector in 2017 is similar to those registered 20 years earlier. Second, that the workers who operate in the branches that use technologies based on natural resources and chemical and basic metals have real wages that are below these values (between 15% and 6%, respec-tively); so current wages are very close to those registered during the

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Fig. 7 Wages in the manufacturing sector by technological content, 1997–2017 (1997 = 100). Source: Own elaboration using INDEC


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convertibility crisis, the lowest point in our history. This shows that despite the enormous growth and employment generated during Kirchnerism, many industrial workers have not been able to materialize it in wage improvements that can be sustained in the face of changes in the accumulation dynamics.

This led us to the analysis of income distribution which can be done by studying the ratio of labor productivity to real wages. This ratio, which is presented in Fig. 8, is a proxy of an index of the rate of exploitation of workers8 and allows us to analyze income distribution since the evolution of labor productivity shows the capacity that the manufacturing sector has to raise its surplus product and real wages tell us how much of this new surplus has been appropriated by workers.

8 For more details see Shaikh (2016) and Santarcángelo (2011).

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Fig. 8 The ratio of labor productivity to real wages in the manufacturing sector by technological content, 1997–2017 (1997 = 100). Source: Own elaboration using INDEC


35

Regarding the ratio of labor productivity to real wages, we can see that the overall performance of the ratio for the Argentine economy at the aggregate level shows a figure that resembles the shape of two smiles. The first one is between 1997 and 2003 and shows the effect of stagnant wages and a declining labor productivity in the manufacturing sector until 2001, and after that a small recovery of firms’ participation in income due to a relatively greater fall in real wages than the decline regis-tered in labor productivity.

The second U shape goes between 2003 and 2017 and has three sub- stages. The first one, in which workers relatively improved their share of income distribution, goes from 2003 to 2006 and presents real wages having a significant growth of 50% of the value it had on 2003, while labor productivity had a slightly upward trend. The second stage goes from 2006 up to 2012 and shows that income distribution between workers and capitals remained stable during these years despite the eco-nomic problems listed previously. Finally, the last period goes between 2012 and 2017 and shows a complete reversal on the previous tendency registered with the result of a significant reduction in labor share of income distribution mainly explained by declining real wages that were negatively affected by productive stagnation and inflationary pressures.

We can see in the figure that the distribution within the industrial sec-tor was not homogeneous. On the one hand, we have the branches of food, beverages, and tobacco; chemical and basic metals; and the auto-motive sector where the distribution of income was favorable to the own-ers of the means of production. This was largely due to the significant increase in labor productivity of these branches, and for the chemical and basic metals also, because of the relatively poor performance of real wages below the manufacturing average. On the other hand, the branches intensive in labor and engineering exhibit an income distribution that was relatively beneficial for workers. In the case of labor-intensive sectors, this was mainly the result of the almost zero growth of the manufacturing VA that ended in 2017 with similar levels to those of 1997 and almost 40% lower than the industrial aggregate; while in the case of the sectors intensive in engineering, this performance was due to the combination of the significant increase in employment in these branches (it grew by 80% in relation to 1997 levels and 35% more than the industrial average) and the poor performance of the VA generated by the sector (on average 30%


36

less than the industrial aggregate). Finally, the natural resource-intensive branches had an income distribution pattern that is roughly similar to the one registered by the manufacturing sector as a whole and ended up with a distribution that is similar to the mid-1990s.

As a result of this analysis we can conclude that today income distribu-tion in the manufacturing sector is similar to the level registered at the beginning of Kirchnerism. This shows that, despite the significant growth rate of the sector and its capacity to generate new jobs, the distribution of income has only been temporarily modified in favor of workers at the beginning of the Kirchnerism. After 2006 when inflation begin to arose and the dispute over income has been intensified, the manufacturing working class was able to sustain its improvements only until 2012, when they started to gradually lose the achievements. The arrival of Macri in 2016 greatly accelerated this process with a transfer of surplus against industrial workers of the order of 28%. The dynamics of virtuous growth allowed the manufacturing sector to grow, incorporate new workers to the sector, but not to carry out structural changes in distributive matters.

Finally, it is important to study the way when business elite and the role of foreign capital changed during the period under analysis. In order to carry this out we present in the next two figures the trends of concen-tration and the role performed by foreign capital in the economy.

As we previously stated, the business elite had a significant role through-out the 1990s in terms of the new wealth generated in the Argentine economy, and its weight in total VA showed a strongly upward trend dur-ing the convertibility regime, going from 19.7% of total VA in 1994 to 23.3% in 2001 (Fig. 9). However, after the devaluation, there was a sig-nificant jump in the ratio between the VA of 500 main companies and the VA of the total economy given that the adjustment and disappearance of companies occurred mostly in SMEs. In 2002, the weight of the leading companies in the generation of wealth exceeded 36%, while in the follow-ing years it stabilized at values around 34%, with a slight drop in the 2008–2009 biennium. After that, it remained stable during the last years of the Kirchner administration, with a slight increase in 2015 that deep-ened with the Macri government and the return of neoliberal policies.

This trajectory shows that one of the results of the 2001–2002 crisis and its subsequent exit was the rise in the level of concentration of the


37

Argentine economy which increased by 62% their weight in the genera-tion of VA in relation to the levels it had during the convertibility regime. Likewise, it is clear that this was not a gradual process—like the one that was observed throughout the 1990s (see Fig. 2)—but that it responded fundamentally to the shock associated with the collapse of the convert-ibility regime and the devaluation of the peso in 2002, and later to the return to neoliberal policies in 2016.

It is important to note that around 60% of the 500 companies are from the manufacturing sector, and this participation has not been sig-nificantly altered throughout the period under analysis (Santarcángelo and Perrone 2012). This shows that despite the growth of the industry in these years, almost no new manufacturing firms were added to the set of the 500 largest companies in the Argentine economy, and thus, the expansion of manufacturing activities was concentrated in a small num-ber of very large industrial companies.

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Fig. 9 VA evolution and share of VA 500 biggest firms and VA total, 1994–2017, in index number (1998 = 100) and percentage. Source: Own elaboration using ENGE (INDEC)


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Finally, regarding the role of foreign capital on the 500 largest corpora-tions, we can see in Fig. 10 that after the crisis of the convertibility regime, the role of foreign capital has been growing slightly but steadily through-out the period and rises its participation 14% between 2001 and 2016.

This greater dominance and participation of foreign capital in our economy involves several difficulties. First, the logic of accumulation of multinational companies is determined by dynamics of accumulation that refer and are defined in the headquarters of the companies, so it usu-ally happens that the foreign company obtains benefits in the country but only a small part is reinvested, in order to continue its operations and to be able to respond to the trend of the local market. This generates a double problem: on the one hand, it reduces the effective growth rate of the economy and the sector in which they performed since the invest-ment falls; and on the other hand, it generates problems in the balance of payments through the remittance of profits of multinational companies.

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Fig. 10 Five hundred biggest firm compositions according to capital’s origin, 1991–2016, in percentage. Source: Own elaboration using ENGE (INDEC)


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The consolidation of the domination of foreign capital in the Argentine economy, and in the industrial sector in particular, significantly hinders the possibilities of achieving autonomous independent development.

4 Trade Balance of the Manufacturing Sector

Once that the industrial productive dynamics of the manufacturing sec-tor is clear, it is essential to study the way in which the sector is related to the rest of the world. This relationship allows us to evaluate the type of integration the country has with the world and also to clearly delimit its development possibilities as well as its degree of external dependence. In order to carry this out, we present in Fig. 11 the trend of exports, imports, trade balance, and the terms of trade for the period 1998–2017.

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Fig. 11 Manufacturing trade balance, exports, imports, and terms of trade, 1998–2017 (million USD and index number 1997 = 100). Source: Own elaboration using INDEC and UN COMTRADE


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As we can observe, during the end of the convertibility regime the manufacturing sector had deficit that was shrinking as the crisis increased and the pace of activity fell. After this, the country started to have surplus in the manufacturing sector as the level of exports and imports grew at very significant rates (200% and 480%, respectively, between 2002 and 2008). However, this growth dynamic was eroding the surplus of the manufacturing sector and began to resurface the external constraint that was only temporarily avoided due to the impact on the trade balance of the global financial crisis in 2009. After that, the manufacturing sector became a structurally deficit sector due to a lower growth path on exports in relation to imports. This dynamic was worsened with the economic policies of opening and trade liberalization applied by Macri’s adminis-tration, and in 2017 the industrial deficit was around 18,000 million dollars (55% of the total reserves of the country in the same year).

This information shows that Argentina has increased its relationship with the world during the period analyzed. Not only because they have increased their exports vertiginously in a very favorable context of inter-national prices, but especially because imports have increased signifi-cantly and the manufacturing sector has a very prominent role in this performance. An element that is important to highlight which is also depicted in Fig. 11 is the favorable evolution of the terms of trade that the country had throughout the period. Although the terms of trade were relatively stable from 1998 until 2003, from that year onward they had improved significantly and reached a peak in 2013 with levels that were 65% higher than the values for 2003. Although there is a decline in the last years of the Kirchnerist governments, 2017 finds the country with an improvement in its terms of trade of 52% throughout the period.

At this point it is important to return to the problem of the external constraint, a cyclical inconvenience that can be defined as the inability of the country to procure itself in a sustainable way, the necessary foreign currency to finance the imports of intermediate goods and capital required by the productive process (Fernández Bugna and Porta 2008). The recent growth process of the Argentine industry started in 2003, lasted for almost a decade without facing the limitation imposed by the scarcity of foreign currency. However, this performance was not due to the transformation of the manufacturing sector into a less-demanding imports sector, but to a


41

strong growth of the total exports, and fundamentally of agricultural products and derivatives, which, given its low demand for imports, allowed the country to obtain a huge trade surplus in those years.

However, after 2012 the dynamics of growth of the local economy began to register severe limitations linked again to the resurgence of the external constraint (Manzanelli et al. 2014; Perrone and Santarcángelo 2018; Schteingart 2016). When the shortage of foreign currency began to become more pressing, Kirchner’s administration took measures to favor the entry of capital and avoid the outflow of foreign currency. The focus was placed on the performance of the most deficient sectors of the Argentine trade balance: the energy sector, the automotive production, and the electronic consumer complex which in 2014 had a combined defi-cit of almost 15 billion dollars, an amount equivalent to 80% of the soy-bean complex’s exports for that year (Perrone and Santarcángelo 2018).

In Fig. 12 we take a closer look at the trend of exports and the partici-pation that the different sectors classified according to its technical con-tent has been presented in the period 1998–2017.

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Fig. 12 Exports by technological content, 1998–2017, in percentage and total exports 1998 = 100 (index number). Source: Own elaboration using UN COMTRADE


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As we can observe, industrial exports recorded an enormous growth between 1998 and 2012 in the order of 250%. As shown by Berretoni and Polonsky (2011, 90) this growth is mainly explained by the increase in export volumes that grew almost 80% in the first decade of the twenty- first century, compared to the increase of less than 50% recorded in prices in the same period. This percentage increase in the quantities exported by Argentina practically doubled the average of the region and also exceeded by a large margin the one shown by the world.

Regarding its composition, almost half of the Argentine exports are made by the sector food, beverages, and tobacco and its importance has grown in the last years under Macri’s administration. The principal firms which operate in this sector are Massalin Particulares SA and Nobleza Piccardo SAICYF, both owned by foreign capital. The second and third group in terms of relevance in exports are the chemical and basic metal and automotive sectors. Taking the three groups together they explained at least 80% of the total manufacturing exports during the whole period.

Two other elements can be derived from the figure. First, between 2002 and 2009, the branches that are linked to the exploitation of natu-ral resources had a significant role that reached 15% of total exports in 2005. It is important to point out that almost all firms that are linked to natural resources are under the control of foreign capital, where firms such as Minera Alumbrera Ltd, Cerro Vanuardia SA, and Celulosa Argentina are the leading firms in the sector. Second, from 2009 onward the branches that correspond to the sectors labor intensive, natural resources, and intensive branches in engineering have been losing partici-pation and since 2015 they all explained less than 12% of total exports.

In relation to the destinations of exports we see that the destinations are extremely varied (Fig. 13). At the end of the 1990s, 30% of total exports went to Brazil, 12% to the United States, and 10% to Chile. The main transformation during the period studied is the loss of relative participa-tion of Brazil, which falls to an average of almost 18% of total exports in the last years under analysis. In the same way, another country that loses relevance is Chile (which ends up with a 4.5% share), while China grows as a destination for exports and ends the period as the second country with an average annual participation of around 8% of total exports.


43

The situation with imports, depicted in Fig. 14, exhibited a phenom-enal growth of imports throughout the period centrally led by the branches of higher technological development and the ones that produce more VA. The branches that have the highest relative participation in imports are the intensive in engineering and its average share in the period studied is close to 32%. The only exception to the domain of this sector occurs during the peak of the crisis of the convertibility regime where the chemical and basic metal branches achieved an average partici-pation of 37.5% in 2002–2003 due to a lower fall of the imports from this category. Finally, the third most important branch by technological content is the automotive industry that goes from representing 12.5% in 2002 and reaches an average of 25% during all post-convertibility. These three branches together explained roughly 75% of the total manufactur-ing imports throughout the period.

Regarding the top origins of these imports, as we can see in Fig. 15, the main industrial partner is Brazil which provided around 25% of total imports which mainly come from the automotive sector. The United

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States also has a prominent role as a top origin but exhibits a decreasing trend that goes from explaining 20% at the end of the 1990s to be around 12% of total imports in 2017. As in the case of exports, the counterpart of this dynamic is provided by China, which shows a clear growing trend throughout the period and ends up in 2017 explaining roughly 20% of all manufacturing imports.

The most interesting thing of classifying all branches according to its technological capabilities can be observed when we study the trade bal-ance of each category. The information is presented in Fig. 16.

As we can observe, only the category food, beverages, and tobacco has trade surplus throughout the period; while the branches whose technol-ogy is linked to natural resources present surplus only between 2002 and 2009. The rest of the manufacturing branches classified according to its technological characteristics present trade deficits, and the essential role is played by the branches which are intensive in engineering whose annual average deficit since 2003 was 13,120 million dollars. This situation accounts for a vast structural problem of the Argentine economy showing

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Fig. 16 Trade balance by technological content, 1998–2017, in million USD.Source: Own elaboration using UN COMTRADE


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that all sectors have a negative balance except those when the country has a natural advantage. This of course does not mean, as orthodoxy main-tains, that the country should specialize in the production of goods in which it has natural advantages, but reveals a degree of immense produc-tive disintegration that not only was not corrected during the Kirchnerism, but also it reveals that the reindustrialization process registered between 2003 and 2015 was absolutely marginal and with no structural change (Santarcángelo 2013; Fernández Bugna and Porta 2008).

As it happened with the productive analysis, large industrial corpora-tions and foreign control performed an important role in industrial for-eign trade. Several facts show this clearly. First, of the 25 companies that most imported during the period 2003–2015, 20 firms are from the manufacturing sector and explain on average 56% of total imports for the period under analysis. Second, 18 of the 20 manufacturing compa-nies that imported most during the period 2003–2015 are under control of foreign capital, which implies a rise in foreign capital participation of 15% regarding their participation during the convertibility regime (Lucero 2018). Finally, of the 25 companies that exported most during the period 2003–2015, only 10 are from the industrial sector and they explained on average 23% of total exports. Eighty-two percent of this 23% is also controlled by foreign capital (Lucero 2018, 24).

5 Industrial Policy

There are basically two general approaches that define industrial policy and its role. The first one corresponds to the neoclassical and dominant approximation in which industrial policy is banned from the develop-ment toolkit and should aim to consolidate the countries’ competitive advantages in the context of an open economy. This version of industrial policy is in line with a standard perspective of the state’s intervention in the economy strictly oriented to remove obstacles to the free interaction of market forces (Moreno-Brid 2013, 219).

The second approximation found in Latin American structuralism and in the scholars who studied the successful development cases of Southeast Asia (Amsden 2001; Chang 2002; ECLAC 2012; among others) view


47

industrial policy as an indispensable instrument to promote development by aiding in the “discovery” of new industries that may create and build up the economy’s dynamic competitive advantages. Real-world experi-ence showed us that industrial policies have always accompanied the growth process of rich countries, and therefore its application and under-standing is a key element to achieve economic development. There is abundant historical and empirical evidence showing that all developed countries have widely adopted targeted government interventions and that industrial policies are necessary not only for takeoff but also for long- run growth (Landes 1970; Di Maio 2009).

As Bianchi and Labory (2006, xv) clearly show, the meaning of the term “industrial policy” has changed a lot over time. Until the 1980s, the term meant the direct intervention of the state in the economy, the direct control by the government of large parts of the production apparatus, and a set of public actions aimed at limiting the extent of the market and at conditioning productive organization. Nowadays, the term “industrial policy” indicates instead a variety of policies which are implemented by various institutional subjects in order to stimulate firm creation, to favor their agglomeration and promote innovation and competitive develop-ment in the context of an open economy. The new industrial policies are therefore mainly industrial development policies, where industry is implicitly considered as the organization, and the strategic management of human competencies and technical capacities (Bianchi and Labory 2006, xvi). Industry in this sense is the main driver of what we may call the Wealth of Nations, meaning the capacity to produce and distribute wealth within a community.

In this chapter, we define industrial policies as a set of public actions with the aim to direct the structural transformation process of an econ-omy (Bianchi and Labory 2006). Thus, industrial policies are all policies that favor and accompany structural change. They are dynamic in nature and primarily consist of programs that evolve over time according to the transformations of the world economy. According to Bianchi and Labory (2006) it is possible to define two broad sets of policies. First, policies aimed at defining the rules of the competitive or competitiveness game (i.e., antitrust, property right legislation, and international rules on world trade), and second, the policies aimed at providing or improving firms’


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and individuals’ capabilities to compete in the real world (i.e., technology and research policies, training and education, policies favoring linkages between firms, and universities and local or regional authorities).

We believe that the industrialization process is essential for the trans-formation of the economy as a whole and it is possible to act on this process in order to guide the entire structural change mechanism. As Moreno-Brid (2013, 227) puts it, industrial policy interventions are based on two assumptions. The first is that the market by itself will not bring about the transformation in the economy’s productive structure in the direction, magnitude, or speed desired by policymakers. The second assumption is that the rate of growth of an economy is associated to an important extent with the composition of its output and of its exports. What an economy produces, the way it produces, and what it exports are among the key determinants of its long-term growth trajectory (see Capdeville 2005; Cimoli et al. 2009; Hausmann et al. 2005).

One aspect that is important to take into account but is often neglected by neoclassical economics is that all economic policies are in the end politi-cal actions. Once you apply them, you favor one group over another. Therefore, all economic policies inevitably involve conflicts—at least in latent forms. Industrial policy is probably the type of policy that is most prone to open conflicts, as it tends to be more explicitly selective than other policies since it inevitably chooses between sectors, technologies, or even individual firms in the same industry (Chang and Andreoni 2016, 29).

During the beginning of the 1990s in Argentina the government had a clear idea of the main problems to solve: technological backwardness, small scales of production, and insufficient development of inter-firm networks (Sirlin 1999). The main rationality put forward by the local defenders of neoliberal thinking was that there were several decades of protectionism and the granting of excessive subsidies by the state to the private sector; local manufacturing activity presented a high degree of inefficiency expressed, for example, in its low external competitiveness, or in its reduced level of productivity. The state by applying industrial poli-cies tends to create unnecessary distortions in competitive markets.

Menem’s administration tried to solve this by attacking what they believe was the mother of all the problems: the anti-export bias. Tariff reductions, the elimination of distortive taxes, economic deregulation,


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making export drawbacks equal to import tariffs, and the reintroduction of temporary duty-free admission were the main measures adopted in this respect (Sirlin 1999, 109). The idea was to reformulate and imple-ment a set of policies less intrusive and essentially restricted to removing obstacles and correcting market failures.

The Industrial Specialization Regime (ISR), which lasted from 1992 until mid-1996, was conceived as a natural extension of these policies and its main aim was promoting exports. The ISR program ceased to exist since it was an absolute failure due to the inadequacy of the incen-tives offered and their lack of linkages with other industrial policy instru-ments. The program revealed an overly orthodox conception of the industrial policy and not only did it not work as an incentive to the reconversion and productive specialization, but also it did not function as an incentive to exports.

As a result of this situation, the industrial policy during the period of financial valorization in Argentina was essentially an overlap of a set of industrial promotion policies that survived the dismantling of the indus-trial policy of the ISI, and the application of new instruments applied during the 1980s and 1990s one on top of another. In general, these poli-cies had a predominantly horizontal approach with the existence of some protected niches (such as the automotive sector). Baruj and Porta (2006) support the idea that the result of this coexistence of regulations gives us a scenario that they called “geological layers”, where successive regula-tions, legal normative and incentives coexist with other remnants of ear-lier times and are managed by a wide range of agencies of the state (Santarcángelo et al. 2017).

The industrial sector that Kirchnerism found in 2003 was a sector that has managed to survive 25 years of the most ferocious disinvestment stage suffered by a country in Latin America. As a result of this process, most SMEs virtually abandoned industrial production, the interindustry framework practically was dissolved, and the surviving companies (mostly large ones) focused on financial investments and obtained the maximum possible benefit from the subsidies granted by the state.

In order to modify this legacy, the government decided to intervene in line with the Keynesian vision of strong state intervention in the process of economic development. As a result, the industrial policy of Kirchnerism


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can be subdivided into three stages, similar to those seen in the previous section. During the first stage (2003–2007) the main tool to stimulate the manufacturing sector was focused on trying to maintain the new macroeconomic environment that was favorable to the production of manufactured goods and that stimulated demand, along with the recov-ery of employment and real wages. During this stage, although the regu-latory framework remained mainly horizontal, the government created new fiscal incentives for sectors such as capital goods and software, while the branches benefited in the 1990s were generally maintained (Santarcángelo et al. 2017). One of the major changes introduced at this stage, which continued until 2015, was the recovery and promotion of the national scientific and technological system that had been dismantled during the 1990s. Under this administration, all scientific and techno-logical activities achieved a real boost that had important repercussions in the economy and in the future development of many productive sectors. Despite these changes, existing (and new) industrial instruments failed to have a significant impact on practice.

In the second sub-stage (2007 to mid-2011), macroeconomic, social, and even political tensions began to appear. The outbreak of the interna-tional financial crisis, which caused negative rates of GDP growth for the first time since 2003, prompt in Argentina the discussion on how to deepen its development path and its reindustrialization strategy. In this stage, industrial policy was marked by a transition with regard to the use of more vertical instruments that allow us to identify the following ele-ments. First, at the scientific and technological level, at the end of 2007 the Secretary of Science and Technology was transformed into the Ministry of Science and Technology, gaining powers, attributions, and resources. Second, after the international crisis, trade policy began to be even more proactive, especially through the application of instruments such as non-automatic licensing. Likewise, at the worst moment of the global international crisis, the government implemented the Productive Recovery Program (REPRO), with the main goal of avoiding and pre-venting layoffs. As a result of this program, the state assumed part of the labor costs of the companies during some period of time enough to exceed the impacts of the crisis. Finally, selective instruments were applied to support cross-cutting technologies such as software, nanotechnology, and biotechnology.


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In the third stage of the Kirchner government (2012–2015), the gov-ernment has already settled the need to move from general policy to “fine tuning” in order to consolidate the process of economic development, strengthen achievements, and minimize the growing challenges in the balance of payments (Santarcángelo et al. 2017). To this end, two pro-grams were drawn up. First, the Strategic Industrial Plan 2020 (Plan Estratégico Industrial 2020) selected 11 industrial sectors to be devel-oped in the future with the idea of improving the articulation among the nation, the provinces, and the municipalities. Likewise, a series of quan-titative objectives of increasing exports, imports, employment, industrial GDP, and investment in the sector were proposed to be achieved in 2020. Second, the Plan Argentina Innovative 2020 designed as an indicative and flexible instrument, through which the Ministry of Science and Technology may have relative guidance on the determination of priori-ties, the ordering of the central lines of action, and the communication of actions and results obtained by the institution (Ministerio de Ciencia y Tecnología 2012, 36). In spite of the attempt of greater articulation and some sectoral planning, in practice both programs ended up being more an expression of desire than a specific work agenda. Moreover, as we know the Argentine economy stagnated and the balance of payments became negative, but what is clear is that the state at this stage assumed a much more active role as producer and user (Lavarello and Sarabia 2015).

Besides these programs, the government also took different measures that had an impact on the development of the manufacturing sector. Among the most important ones, we can remark that the country’s main oil company, YPF, was partially re-nationalized, taking control of the exploration and extraction of oil and gas; the state began to prioritize (through strong financial support) public companies, such as Fabricaciones Militares (FM), which had played an important role in the ISI model and had been badly deteriorated during the 1990s; the possibilities of financ-ing were gradually increased for public companies whose objective was to develop high technology projects (INVAP); and the regulation of foreign trade became more profound, due both to the shortage of foreign exchange and to the objectives of import substitution.

In summary, the Kirchnerist government’s interest went from strength-ening the sectors in which Argentina had static comparative advantages


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(such as mining, forestry, or fishing) to fostering competitiveness in sec-tors in which comparative advantages were low (automobiles and capital goods, among others) or even create new sectors (such as aerospace, bio-technology, or nanotechnology, among others). However, the results obtained did not fulfill the expectations, mainly due to the inability to cope with the resurgence of the external constraint; the lack of an indus-trial development program articulated within a more general develop-ment program; and, despite that there was an increase in financial resources for industrial policy, the results were weak.

Macri’s government decided to give a change of course and reapplied as we saw neoliberal policies. With regard to the industrial sector, its industrial policy scheme is to base the development of the country cen-tered on the use of comparative advantages. In line with the neoclassical postulates and contrary to the attempts of the Kirchnerismo to modify the sector through the increasing use of vertical policies, Macri has once again applied policies of openness and deregulation that have not only caused the fall of the product, employment, and salary industrial, but it has tended to achieve regressive industrial reconversion. In a framework where the applied policies favor financial and speculative investment over the productive one, the industry is once again in a scheme where not only will it not improve but the situation will worsen.

6 Current Situation and New Possibilities

The world has experienced in the last 50 years important transformations that have conditioned the development possibilities of the countries and of the manufacturing sector. Among the main ones are the international-ization of production processes, the possibility to delocalize production, as well as the growing organization of production in the global value chains. To this must be added also the challenges posed by China as a major global producer as well as the changes involved in the transforma-tion that is taking place as a result of the arrival of Industry 4.0, which promotes the computerization of manufacturing (Liao et al. 2017). Finally, the formation of the World Trade Organization (WTO) in the


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mid-1990s and the exponential growth of international trade, as well as the significant increase in the financialization of the economy, are phe-nomena that strongly influence all the economies of the world.

The current Argentine manufacturing sector is essentially the result of 25 years of fierce deindustrialization that has left an indelible mark which the period of industrial growth registered between 2003 and 2012 has not been able to revert. As a result, the Argentine industry has a weak indus-trial framework, with few productive links between sectors; it is specialized in medium and low technology, has increased its technological depen-dence, and whose trade is extremely deficient in all sectors that have some medium level of technology. It also has a high degree of concentration, and foreign capital plays an extremely important role not only in terms of production, but also it explains a good part of the sector’s deficit.

With this diagnosis, what paths the country has available in this situa-tion? The first option is to apply the Washington consensus strategy that Macri’s administration is following. It implies to go back to the applica-tion of economic policies that were applied during the 1990s and sup-ports the idea that Argentina needs to focus and develop the sectors where it has comparative advantages and rely on the power and “almighty will” of the markets. Openness, liberalization, privatization, financial deregu-lation, and external indebtedness are all back in the table, and as a conse-quence, the state needs to be squeezed to its minimum expression.

The problem with this kind of solution is that there is plenty of evi-dence in our country and also elsewhere that these policies do not lead to economic development. Instead, they serve to consolidate the underde-velopment of peripheral nations by preventing any strategy that could promote a genuine process of development and generate a process of redistribution of income against the working classes. In this sense, the crisis process of 2001–2002 suffered by Argentina is sufficient evidence that this kind of strategy does not intend to consolidate economic development but to generate structural conditions that allow to maxi-mize profit. The result of Macri’s administration will be exactly the same.

The second option is to try to take an approximation more close to what Kirchnerism tried. But what you can see is that despite the extraor-dinary growth rate, support for science and technology, the reconstruc-tion of the institutional framework, and even the realization of some


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structural changes (nationalization of YPF, the recovery of retirement and pension funds, and debt reduction), an industrial policy based almost exclusively on the exchange rate is not enough to reverse the legacy of 25 years of deindustrialization. A deeper and more radical change is nec-essary if we are pursuing a transformation in the dominant model of productive specialization of the sector.

Although the elaboration of a way to achieve structural change exceeds the objectives of this work, the Argentine experience allows us to list a series of elements that are very important. First, it is essential to have a long-term development program. Kirchner administration never had it. The lack of a program not only implies not having clear priorities, but it also increases the risk that everyday problems lead you to permanent changes of direction. In this regard, although sometimes the Kirchner government chose the battles to dispute, most of the times the problems arose, modified the course, and many times prevented the virtues of the economic model to be deepened. Nevertheless, the administration did have some principles that tried to defend among which stand out: indebt-edness, increase the level of employment, protect the internal market and consumption, and take care of the needy and retirees.

A better diagnosis of the international context and the current indus-trial sector problems and virtues is also a priority. In order to design effec-tive industrial policy these inputs are a necessary condition. The state needs to take into account what happens in the globalized world we are living in and how the main trends: financialization, trade openness, inter-nationalization of the production processes, the organization of many productions in global value chains, and so on, affect your manufacturing sector and your prospects. But also a clear diagnosis of the particularities of each sector needs to be studied and analyzed.

Moreover, industrial policy must be more active, interventionist, and profound, capable of prioritizing winners and losers regarding sectors and companies. It has to be able to offer an effective regime of rewards and punishments and, in addition, favor the rearming of the industrial frame-work, and especially encourage the public-private virtuous interaction. As Chang and Andreoni (2016, 8) noted, well-calibrated regulation of com-petition between domestic firms regarding investment, export, and other activities was also highlighted as a priority to modern industrial policy.


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The state must also work out on how these issues will be implemented and eliminate the “geological layers” of successive regulations, legal nor-mative and incentives that coexist from different times. A detailed study of the opportunities and limits related to the regulations in force, as well as an analysis of the overlapping of existing regulations, must be carried out and corrected. The analysis of laws and regulations to enhance devel-opment, in turn, could possibly lead to the need to modify the national constitution, and this would require an enormous support and political consensus, and to rethink the way the government is organized and how much coordination is needed between different ministries.

It is important to ponder on the lessons we can learn from the produc-tive dynamics shown by the Argentinean industrial sector in the long term. The virtual stagnation of labor productivity at the aggregate level of the economy shows, first, that the country did not substantially improve its capacity to produce goods and services, and second, that the systemic evolution is cyclical just as the classical political economists have discov-ered many years ago. And in this cyclical movement, the system moves through the dispute over profits.

If we analyze the Argentinean case in the long run since the mid-1970s to the present, one sees recurring cycles: during the growth periods cer-tain improvements in employment and wages are achieved, until the peak is reached, and then the country goes back into recession. At this point many firms collapse and remain out of the market, which increases unem-ployment and deepens the recession until the rate of profit of the econ-omy is recomposed. At that point, the companies that survived return to have growing demand, begin to invest, and hire new workers, and the ascending cycle begins again. But it is important to note that the cycle does not always return to the point of departure, and in the case of Argentina, the recurrent crisis that the country had suffered since 1976 always ends up with a lower workers’ share in income distribution.

In this sense, the evolution of labor productivity and real wages during the period 1998–2017 shows that although the productive capacity of the economy has grown significantly since 2003 and then stagnated from 2012, capitalists have been able to find the way to recover the surplus product appropriated by workers at the beginning of Kirchner’s adminis-tration. As a result, income distribution in the manufacturing sector has


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a similar level than the one registered during 1998 which is one of the lowest points in historical terms.

Finally, it is important to end this chapter with a reflection on the capacity and limits of the state’s capacity. Has the state the power alone to introduce all these changes? Although it is not the object of this study to develop and review all theories of the state, experience shows us that states are usually the subject of disputes between different classes and interests (workers vs capitalists, foreign vs local capital, manufactur-ing vs agricultural, Transnational Corporations (TNCs) vs Small and Medium Enterprises (SMEs), etc.) and that the state’s actions under capi-talism ultimately have the goal of being functional to the accumulation of capital. Therefore, a long-run development of the Argentinean manu-facturing sector cannot be guaranteed solely by the state; and it needs the active support and commitment to the project of the working class. Until the Argentinean working class re-assume its role and recover the place it used to have during most of our history, economic development will remain a utopia.

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Structural Change and the Manufacturing Sector

in the Brazilian Economy: 2000–2014

Carlos Aguiar de Medeiros, Fabio Neves Peracio Freitas, and Patieene Alves Passoni

1 Introduction

After the booming years of the beginning of the new century, the disap-pointing performance of Brazilian economy in the last half decade aroused debates and interpretations among economists. Many analyses grounded on structuralist and Keynesian/Kaldorian perspectives consider that this evolution expresses a broad structural change whereby deindus-trialization (measured by manufacture ratio to gross domestic product [GDP]) and regressive specialization (measured by the export ratio of

C. A. de Medeiros (*) • F. N. P. Freitas • P. A. Passoni Economics Institute of the Universidade Federal do Rio de Janeiro (UFRJ), Rio de Janeiro, Brazile-mail: [email protected]; [email protected]

Carlos Aguiar de Medeiros thanks CNPQ for the financial support. Patieene Alves Passoni thanks CAPES for the financial support.


mailto:[email protected]


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primary goods and industries based on natural resource in total exports) constrained economic growth and depressed investment and technologi-cal perspectives of the Brazilian economy.

However, far from unambiguously evident, the analysis of this processes and the usual indicators utilized in their characterization have two main ana-lytical problems. First, given the inner connection between the investment-output ratio and manufacturing production (particularly of machines and equipment), the evolution of capital accumulation led by demand not only affects but also follows the manufacturing share of value added. Consequently, the evolution of this share may not express permanent changes in the eco-nomic structure. The second problem concerns the fact that the composition of external trade does not reflect the composition of the productive structure of the economy. According to the modern division of labor, specialization in activities and tasks in global value chains (GVC) led by transnational enter-prises replicates the “center- periphery” hierarchy originally associated with physical characteristics of the final goods. Thus, common industrial classifica-tions of goods according to their technological content (like OECD’s indus-trial classification) implicitly assume that their production occurs in firms that control the technological flows (and capital goods) associated with the final goods and that there exists a national production system providing most of its inputs. The diffusion of manufacturing production in developing coun-tries through GVC challenges both assumptions. Moreover, particularly in a large country like Brazil, which has a big internal market and rich endow-ments of natural resources, trade specialization may reflect changes in the geography of trade and in the terms of trade. Thus, as observed in the last decade, the high demand and high prices of commodities pushed by China expansion increased the share of primary commodities in total exports in all commodities exporter countries. Thus, the latter indicator does not give us an adequate picture about changes in the productive structure of the economy.

In order to work around the limitations of the usual industrial classifi-cations, we will adopt in our analysis an industrial classification suggested by Kupfer (2005) and Torracca and Kupfer (2014) that fits better the main characteristics of the Brazilian economy. In particular, we are inter-ested in the identification of those activities realized within the manufac-turing industry that are responsible for the main technological flows (innovation and diffusion of new products and techniques) in the Brazilian economy. These activities are included in what is called the

C. A. de Medeiros et al.

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innovative industry (II) group. The analysis of a set of indicators related to this industry group allows us to evaluate the nature and intensity of the deindustrialization and regressive specialization processes occurring in the Brazilian economy in the period under investigation. Thus, in order to overcome some of the problems already mentioned, besides the more usual indicators as the value added and employment shares, we will exam-ine external and domestic competitiveness indicators and also indicators capturing the density of interindustry relations (total backward and for-ward input-output linkage indicators).

The main purpose of this piece is to examine the process of structural change in the Brazilian manufacturing sector from 2000 to 2014 using indicators that give us a more accurate or, at least, a less ambiguous appraisal of such process. Our analysis covers a period that starts at the last years of President Fernando Henrique Cardoso second government term. In 2003, President Luiz Inácio Lula da Silva, from the Worker’s Party (PT), took office initiating the first term of his government. President Lula was reelected in 2006 and started his second term in 2007. After that, President Dilma Roussef, also from the PT, succeeded President Lula, taking office in 2011. She completed her first government term and was reelected for a second one in 2014. Initiating in 2015, President Dilma’s second mandate was characterized by economic and political turbulences that eventually led to her impeachment in 2016. From the economic viewpoint, 2015 was a very atypical year featured by a deep recession, accelerating rates of inflation and important changes in relative prices. For these reasons, we chose not to include the year 2015 in our analysis. We believe that its inclusion could distort our investigation, which has a focus on structural change trends of the Brazilian economy and, in particular, of its manufacturing sector.

In addition to this introduction, this chapter consists of three sections. In Sect. 2, we present the methodological approach followed in the chap-ter, emphasizing the role of accumulation rate and its influence on the measures of industrialization, the connections between technical progress and interindustrial relations, and the chosen indicators. Section 3 exam-ines the evolution of the Brazilian economy between 2000 and 2014. Here we present the main evidence on the rate of investment and struc-tural change, highlighting in particular the II and its internal and external competitiveness as well as the evolution of interindustrial relations. The final section concludes and summarizes the main results.

Structural Change and the Manufacturing Sector…

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2 Analytical Framework

In this chapter, we assume that in the long run the mutual interactions between structural change and economic growth led by effective demand explain the diversity of national development trajectories. Although the assumption that demand leads economic growth is very usual among Keynesian development economists, we suppose here more specifically that the main source demand-led growth is the expansion of noncapacity creating expenditures such as external demand, public expenditures (including both government consumption and investment), and private domestic expendi-tures such as residential investment and consumption financed by credit.1,2

One important way in which growth led by aggregate demand can influence the process of structural change is through its relationship with the investment-output ratio. In fact, there is a strong empirical connection between the trend rate of GDP growth as explained above and the invest-ment-output ratio (De Long and Summers 1992).3 The latter connection gives us a significant transmission mechanism from the macroeconomic performance of the economy to the pattern of structural change.

The role of gross fixed capital formation in the process of structural change follows from the fact that, besides its demand and balance-of- payments effects, it has an important effect on structural change.4 This last outcome mainly involves technological diffusion effects through techno-logical flows. The importance of these effects depends, among other things, on the characteristics of the domestic productive structure and its articula-tion and integration with regional and/or global production systems.

1 Private investment, the main source of technical change in most economies, will grow according to the increase in final demand composed of domestic demand for consumer goods, exports, and technological innovation. Private investment follows the autonomous components of demand where government spending, credit finance consumption, and exports constitute the major sources. Most Keynesian and Structuralist analyses that seek to articulate demand factors with industrial transformations highlight other mechanisms like the importance of key macroeconomic prices such as the interest rate, the profit rate, and the real exchange rate over the investment expenditures (see Chang and Andreoni 2016, and new developmentalist Latin-American economists).2 For references see, for instance, Serrano (1995a, b), Freitas and Dweck (2013), Freitas and Serrano (2015), Girardi and Pariboni (2016), Fiebiger and Lavoie (2017), and Fiebiger (2018).3 In this connection see, for instance, Lipsey and Kravis (1987), De Long and Summers (1991, 1992), Blomström et al. (1996), and Sala-i-Martin (1997).4 In what concerns the connection between capital accumulation and structural change, see the important contribution by Cornwall (1977).


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From this perspective, the typical industrial classification into aggregates such as manufacturing sector (measured by its share of total value added or employment), agriculture, and services explains little. Indeed, Friedrich List ([1837]1983) observed that the national power was not based on material objects but “upon the creative power which makes possible the production of material goods” (List [1837]1983, 180). As argued by Karl Marx ([1889]1991), the production of capital goods became the “core” of modern technical progress and the material form of capital accumulation. Walther Hoffmann (1958) considered the process of industrialization as an evolution starting from consumer goods as the key industry toward capital goods. Moshe Syrquin (1988) considered development as the “increase in the overall density of the input-output matrix”. In the same sense, Albert Hirschman (1958) described development as an increased complexity of inter- and intra-industry transactions and an increase in the variety of goods, with emphasis on capital and intermediary goods (Toner 1999).

Under the OECD industrial classification (based on Lall 2000 and OECD 2003), measured technological efforts, as R&D investment, explain most of the technological differences among industries, and their geographic localization explains different national specialization patterns. Thereby, economic development leads to an economic evolution accord-ing to which national specialization changes from low-tech industries (based on natural resource and/or unskilled labor) toward industries char-acterized by higher intensity levels in technology. However, this kind of industrial classification based on characteristics of the products cannot properly identify those industries responsible for the technical innovations and the diffusion of technical progress, which are intrinsically related to the process of capital accumulation (Urraca-Ruiz et al. 2014). Moreover, these classifications also contain another significant problem connected to the fact that the world division of labor is increasingly ordered by the spe-cialization in tasks and productive activities resulting from the rapid expansion of GVCs promoted by transnational enterprises in the world economy (Medeiros and Trebat 2017; Chang and Andreoni 2016). The latter expansion calls into question classifications based on the physical characteristics of the final goods (e.g., textile or electronics) such as those related to Lall’s classification. Thus, in order to capture these effects, it is important to analyze the economy in a multisector level with an industrial classification that allows us to identify those industries that have an


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important role in the technological/knowledge flows in the system (Kupfer 2005; Torracca and Kupfer 2014; Chang and Andreoni 2016).5

On the other hand, the positive relationship between the trend rate of output growth and the investment-output ratio reveals a relevant limita-tion of the usual indicators utilized for the analysis of structural change (particularly in Brazil as we will discuss in this work), such as the share of manufacturing value added (or employment) in total value added (or employment). Since there exists a positive relationship between the investment-output ratio and the manufacturing value-added share, a decrease (increase) in the trend rate of output growth generates a reduc-tion (increase) of the manufacturing value-added (employment) share. One can mistakenly interpret this result as an irreversible structural change, while, in fact, a subsequent increase (decrease) in the trend rate of demand-led growth may reverse it (or deepen this regression).

Most comparative studies on growth regimes and trade specialization explain national differences according to macroeconomic and industrial policies. However, one may consider that beyond macroeconomic and industrial policies framework, structural characteristics such as the natural resource endowment, the size of population, and geography (given struc-tural features) exert significant influence on country specialization. These given structural features affect the degree of openness of economy since the large size of population and territory leads to a small share of nontradables in the productive structure of the economy. In fact, Simon Kuznets (1958) showed that the importance of foreign trade was (inversely) associated with the size of a country (measured by population). Bert Hoselitz (1959) included resources and the man-to-land ratio to identify structural patterns of growth. In its turn, Amsden (2001) observed as well that the size of the country (measured by population) and population density affect the relative

5 As Chang and Andreoni (2016) have argued, with the pervasive expansion of intermediary trade in global value chains, industrial classification by sector becomes increasingly fuzzy and does not necessarily express the technological linkages. “Technological linkages among different manufac-turing processes may be used to define ‘capability domains’, that is, domains of techniques, produc-tive knowledge, and production technologies/equipment that show high degree of similarity and complementarity. Beyond standard sectoral boundaries, a manufacturing process could be re- conceptualised according to the underpinning capability domain. Different manufacturing pro-cesses could be then clustered based on their reliance on particular capability domains. This procedure would allow for a transition from a product-based taxonomy to a production technology- based taxonomy” (Chang and Andreoni 2016, 36).


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roles of internal and external demand. Moreover, contrary to what happens in small countries, in large countries that rely on large internal markets, a diversified production structure does not necessarily translate into a diversi-fied export structure. The latter fact shows that the manufacturing share in total exports, a usual structural indicator, does not give us accurate informa-tion to evaluate the role of the manufacturing sector in an economy.

Given these aspects, we need some indicators of structural change that can overcome the above limitations. In this work, we will use the follow-ing indicators:

a. The share of the value added (and employment) of the II group in total value added (and employment);

b. The competitiveness indicators such as given by the market share of domestic exports in world exports by industry (export ratio) and the market share of imports in total supply by industry (import ratio);

c. The density of the interindustry relations as captured by the input- output linkage indicators.

3 The Brazilian Economy from 2000 to 2014

Two main features influenced the world economy and affected, in par-ticular, the Brazilian economy: the large flows of private capital to devel-oping countries and the high demand and high relative price of commodities (Serrano and Summa 2015; Dos Santos et al. 2016).

The fast expansion of the Chinese economy is the main explanatory fac-tor for this second characteristic of the world economy in the period under analysis. Chinese expansion had two effects on the Brazilian economy: a demand effect and a structure effect (Medeiros and Cintra 2015). The demand effect is directly related to the fast pace of growth of the Chinese economy stimulated both by its exports and domestic demand. China’s fast growth exerted an important positive influence on the international demand for commodities, with particular positive repercussion on the Brazilian economy because the latter has a strong competitive position in international commodities markets. Moreover, the discovery of large petro-leum reserves in the pre-salt layer reinforced this Chinese demand effect


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putting the Brazilian economy in a prominent position in the global petro-leum market. Among natural resource countries, Brazil’s distinctive feature is its strong presence and competitiveness in the three major commodity groups: agriculture, mineral, and oil. Chinese’s fast expansion exerted a strong push effect in all of them.

The Chinese structure effect induced by the rapid change in its pro-ductive system and trade pattern of specialization has influenced the world economy and, particularly, the Brazilian economy through two channels. In the first one, it exerted its influence through its impact on the quantum of exports and terms of trade favorable to commodities exporters, and, in the second one, through its effect on competitiveness, by dislocating less competitive rivals from their domestic and external markets. In the case of Brazil, this last effect was mainly observed in the external markets for Brazilian manufacturing products in South American countries and in its domestic markets.

Thus, the external conditions in the new millennium prevailing before the 2008 world crisis feature an expansionary (but volatile) macroeconomic environment characterized by huge capital flows and high commodity prices. After the 2008 great crisis, the low rates of growth of the world economy and of the world trade stimulated fierce competition between the Chinese and the other industrial producers for manufacturing markets.

3.1 Economic Growth

Since the beginning of the new millennium, the process of economic growth of the Brazilian economy can be separated into two distinct peri-ods. One, from 2000 until 2008, in which we observe a strong rise in the GDP rate of growth and the investment-output ratio (as measured by the difference between the rate of growth of the gross fixed capital formation [GFCF] and the rate of growth of GDP); and another one from 2010 to 2014 characterized by a deceleration in GDP growth and the investment- output ratio (see Fig. 1).

In the first period, the rate of growth of employment strongly increased and then decelerated in the second period, although in a pace less accen-tuated than the rate of GDP growth as can be seen in Fig. 1 from the difference between the rates of growth of GDP and labor productivity.


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The external conditions that prevailed in the world economy since 2003 relaxed the balance-of-payments constraint that had previously trapped Brazilian economy (particularly in the period between 1998 and 2003). In particular, exports increased at a fast pace until the world crisis in 2008, contributing as a source of foreign reserves (mainly dollars). Though these new external conditions were crucial for the achievement of the macroeconomic expansion, several domestic policies promoted by the government of President Lula pushed the rate of growth of household consumption through consumer credit, public spending, and income policies. High (appreciated) exchange rate neutralized inflation pressures from higher commodity prices and allowed higher wages and pensions (Serrano and Summa 2012). In particular, this environment and the combination of substantial increases in official real minimum wage (an important index for lower value pensions in the Brazilian economy) with

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

GDP 1.4 3.1 1.1 5.8 3.2 4.0 6.1 5.1 -0.1 7.5 4.0 1.9 3.0 0.5

GFCF 1.3 -1.4 -4.0 8.5 2.0 6.7 12.0 12.3 -2.1 17.9 6.8 0.8 5.8 -4.2

LP 0.8 -0.3 -0.4 0.6 0.1 0.9 4.1 3.4 -1.0 5.3 2.2 0.2 1.3 -2.3

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

GDP GFCF LP GDP Trend GFCF Trend LP Trend

Fig. 1 GDP, GFCF, and labor productivity rates of growth: 2000–2014 (%). Source: Author’s elaboration based on IBGE data


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government cash transfers such as “Bolsa Família” led to a significant improvement in personal (labor) income distribution and also positively influenced the wage share (Medeiros 2015).

Thus, even under a traditional macroeconomic regime based on infla-tion targeting, primary budget surpluses, and floating exchange rate, adopted at the end of the 1990s, the external conditions and the prag-matic domestic policies (adopted mainly after 2006) reinforced each other, generating an expansionary domestic economic environment. Indeed, led by exports (now considered as an aggregate demand compo-nent) and internal markets, the investment-output ratio (public and pri-vate) substantially increased in the period (Dos Santos et al. 2016).

After 2009, the external environment changed and we observe a lower growth of world trade, lower commodity prices, and the intensification of competition in markets for manufacturing goods. Although this change had a depressive influence on the world economy, in Brazil after the relaunch of an expansionary policy in the aftermath of the 2008 crisis, a contractionary economic policy took place after 2010, amplifying this deceleration trend (Serrano and Summa 2012; Dos Santos et al. 2016; Magacho 2016). In fact, in 2011, the new elected government of President Roussef promoted a change in the orientation of macroeconomic policies (Serrano and Summa 2015). The main change was the abandonment of a pattern of demand-led growth based on public demand, credit-financed consumption, and household residential investment. In its place, the Brazilian government at the time aimed at a pattern of growth led by pri-vate enterprise investment and exports. With such objective in mind, the government used various policy instruments such as increased fiscal incen-tives to the private investment including a reduction in the tariffs of public utilities, lower tax rates, lower interest rates, and a more depreciated real exchange rate to stimulate manufacturing exports. These changes in exter-nal and internal conditions led to a decrease in the growth rates of GDP and investment that we observe in Fig. 1.

Observe also that the rate of growth of labor productivity follows the same pattern as the GDP and investment growth rates. It has an increasing trend until 2008, and from 2010 onward it displays a declining tendency. The latter result corroborates the Kaldorian and Structuralist view accord-ing to which productivity follows the rate of capital accumulation.


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3.2 Structural Change

Along this period, many Keynesian and structuralist authors (particularly the new developmentalist authors as Bresser-Pereira 2010; Oreiro and Feijó 2010) suggested that a declining rate of profit in manufacturing activities caused the decline observed in capital accumulation, a deindus-trialization process, and the growing specialization in primary exports. According to this point of view, the appreciation of the real exchange rate (RER), particularly along the first decade of the new millennium, and its presumed effects on manufacturing imports and exports explain these structural changes. On the other hand, some authors (e.g., Carneiro 2008, 2017; Cano 2012; Sarti and Hiratuka 2017) highlight a process of regressive specialization and a decline in the density of interindustry rela-tions that initiated in the 1990s and gained particular strength after the great crisis of 2008. Although macroeconomic policies and particularly (the lack or the failure of ) industrial policies are present in these narra-tives, they also explore other factors like the excess of competition in industrial world markets, the strong Chinese competitiveness in manu-facturing production, and the growing presence of productive and finan-cial alliances among Brazilian and international firms.6

Thus, for both perspectives, the deindustrialization process (as mea-sured by the ratio of manufacturing value added to total value added) and a regressive specialization (as measured by the ratio of primary goods and natural resource industrial exports) are main features of Brazilian struc-tural change in the last decade. However, as we observed in the previous section of this chapter, these indicators have important limitations. More specifically, they do not properly express structural changes and in order to examine such changes we need to use other indicators.

We also saw that an investigation of the process of structural change requires a multisectoral analysis of the economic system, which is particu-larly necessary in order to address the thesis of regressive specialization.

6 According to Sarti and Hiratuka (2017), the intense flows of foreign investment registered in the period accentuated the denationalization of the productive base, transferring abroad the control of strategic decisions on production, marketing, and investment. The result was the deepening of the regressive specialization through an increase in the imported content and coefficient, without a proportional increase in the exports coefficients.


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Hence, as discussed above, we need to adopt an industrial classification that fulfills the following requirements: it captures the technological flows in the economy; is related to the patterns of competitiveness in external and internal markets; and is also compatible with the official industrial classification used in the compilation of Brazilian databases.

Thus, we opted to follow the industrial classification proposed by Kupfer (2005) and Torracca and Kupfer (2014). We work with the Brazilian economy disaggregated in 11 industries, described in the Appendix, and the manufacturing and extractive industries in the follow-ing industrial groups:

• Processed Agricultural Commodities (AC): sectors intensive in natural and energy resources, being generally associated with agribusiness and homogeneous products of high tonnage;

• Industrial Commodities (IC): natural resource-intensive activities related to the mineral extractive industry, metallurgy, and basic chemistry;

• Traditional Industry (TI): industries that produce goods with less tech-nological content, with few requirements regarding the productive scale; production of wage goods, inputs, industrial parts and comple-ments, and manufactured consumer goods. Composed of a variety of activities, such as metal products, various chemicals and electrical materials, and industries dedicated to the production of consumer goods such as food, textiles, footwear, and furniture, among others;

• Innovative Industry (II): more sophisticated activities in terms of the technology and organization adopted in their production process. This group joins industries that most contribute to the technological diffu-sion process in the economy, such as the production of mechanical and electronic equipment industries, high-tech industries, and durable consumer goods industries (e.g., automobiles and electronics).

The correspondence table among industry groups and industries is available in the Appendix to this chapter.

This classification combines demand factors related to categories of use with supply factors that capture the influence of technical production


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systems and technological flows in the economy.7 Also, it expresses differ-ent patterns of market competition.

The data used in this analysis is based on Input-Output Tables (hereaf-ter, IOT) and Supply and Use Tables (hereafter, SUT). The Brazilian IOT is published by the Brazilian Institute of Geography and Statistics (IBGE). Recently, there was a methodological change in the System of National Accounts that made previous IOT data not comparable with the most recent ones. To fill the gaps of the years for which the IOT are not offi-cially released, updates of the official IOT for the year 2010 are estimated for 2000 to 2014. In this case, to analyze all the period, we propose an IOT estimation for the years 2000–2009 and 2011–2014. We adopted the methodology proposed by Grijó and Bêrni (2006) that uses partial information from the TRUs and some structural information from the official 2010 IOT.8

3.2.1 The Innovative Industry in the Brazilian Economy

In this section, we will discuss only the performance of the manufactur-ing and extractive industries disaggregated according to the classification suggested above.9 More specifically, here we will start by analyzing the performance of the four industry groups in terms of gross output, employ-ment, value added, and labor productivity indicators.

First, considering the rate of growth of gross output among our four groups (see Fig. 2), one main finding is the leading role of the II group in the period of high growth (2000–2008). As can be seen in Fig. 1, in this period the investment-output ratio increased, and as far as this group

7 Although this classification is better suited to capture the structural characteristics of the Brazilian economy, it still presents some of the problems identified in the traditional OECD classification. In Brazil, the oil sector is one of the most technologically sophisticated and the main hub of a productive chain articulated with suppliers of machinery and equipment and, therefore, should be classified within the innovative industries. However, as all the innovation is limited to the process of production and there is no innovation in product, we prefer to maintain this separation in order to provide a classifica-tion more compatible with other studies on the productive structure of the Brazilian economy.8 For a more detailed description of the methodology, see Passoni and Freitas (2017).9 In the next section, the agricultural and services industries are included again in the analysis in order to capture their interrelations with the manufacturing and extractive industries.


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contains machines and equipment producers, the latter variable has a posi-tive influence on the rate of expansion of this group (5.3% in average per year) when compared to the other groups.10 On the other hand, the TI group had a lower rate of growth (2.0%) compared with the IC group (2.7%) and an approximately equal rate of growth to the one observed in the processed AC group (1.9%). The situation changed significantly in the second period (2010–2014), in which we observe a general decline of the rates of growth. Moreover, following the contraction in the pace of capital accumulation, the II group presented the worst performance in the period, with a negative annual average rate of growth of −0.5%. The TI group also featured a negative annual average rate of growth of −0.2%. At the same time, the IC and processed AC groups maintained positive (albeit lower) annual average rates of growth of, respectively, 2.4% and 1.0%.

10 The connections and evidence from the investment rate and production of capital goods in Brazilian economy were also discussed in Magacho (2016).

2.7%

1.9% 2.0%

5.3%

2.4%

1.0%

–0.2%–0.5%

2.5%

1.5%1.2%

3.1%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Industrial Commodities Processed AgriculturalCommodities

Traditional Industry Innovative Industry

2000-2008 2010-2014 2000-2014

Fig. 2 Annual average rates of growth of gross output of the four industry groups for selected periods (%). Source: Author’s elaboration based on the SNA, IBGE


75

Concerning the total gross output shares of the industry groups we would like to highlight the persistent decline of the share of the TI group over the whole period and also the significant reduction in the share of the II group from 2010 to 2014 (see Fig. 3). The combination of the rate of growth and share of gross output indicators lead us to the analysis of the contribution of each industrial group to the growth rate of gross output of the whole economy (Fig. 4). As can be verified, the reduction in the rates of growth of gross output in all industry groups from the first to second period led to a decline in the contribution of each of these groups to the rate of growth of gross output of the Brazilian economy. However, the TI and II groups were sufficiently strong to change the contribution from a positive value in the first period to a negative one in the second period. More important for our investigation is the fact that the contribution of the II group experimented the most significant fall among the four industry

11.0%

1.6%

12.4%

7.7%

14.3%

1.4%

11.6%

9.1%

12.2%

1.4%

10.9%

8.7%

12.2%

1.2%

10.6%

7.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%



2000 2008 2010 2014

Fig. 3 Industry group share in total gross output of the economy (%). Source: Author’s elaboration based on the SNA, IBGE


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groups, to the extent that it changed from the first to the fourth position in the ranking of contributions among industry groups. On the other hand, taking into consideration the whole period, from 2000 to 2014, the IC and II groups were the more important contributors to the overall Brazilian rate of growth of gross output among the four industry groups.

Now, let us discuss the evolution of the employment indicators of our four industry groups. The rates of growth of employment in the four groups (see Fig. 5) follow the same pattern observed in the case of the growth rate of gross. However, it is important to notice that there is a more marked difference between the rates of growth of employment in the two periods, in particular for the IC and processed AC industry groups. On the other hand, the employment shares of the four industry groups display less pronounced changes than the gross output shares of the same groups (Fig. 6).

0.28%

0.03%

0.24%

0.44%

0.29%

0.01%

–0.02%–0.04%

0.26%

0.02%

0.13%

0.24%

-0.10%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%



2000-2008 2010-2014 2000-2014

Fig. 4 The contribution of industry groups to gross output rate of growth for selected periods (in terms of percentage points of the annual average rate of growth of gross output). Source: Author’s elaboration based on the SNA, IBGE


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One suggestive feature of Brazilian economy along the whole period was the relative stability of the IC value-added growth (in a period of intense changes in their price) contrasted with the relative volatility of rate of growth of the value added of the II group. As a comparison of Figs. 7 and 8 reveals, these groups present the same pattern of evolution in terms of gross output and value added along the period under analysis. In particular, the rate of growth of value added of the II group is relatively (to total value added) high in the first part of the period, while it is relatively low in the second part of the period. Thus, the value-added share of the latter industry group increases over the first part of the period and decreases in the second one. However, note that the share of II group in total value added is almost the same in 2000 and in 2014, the final year of the period. Hence, we cannot conclude that there is properly a process of deindustrialization ongoing in the Brazilian economy based only on this indicator.

3.8%

1.2%

3.4%

5.3%

1.9%

–0.9%

0.8%

0.0%

3.1%

0.5%

2.4%

3.6%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%



2000-2008 2010-2014 2000-2014

Fig. 5 The rate of growth of employment of the industry groups for selected periods (%). Source: Author’s elaboration based on the SNA, IBGE


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Another noticeable fact about the Brazilian economy along the period under investigation has been the stagnation of the level of productivity of the four industry groups as measured by the value added to employment ratio (see Figs. 9 and 10). This is particularly true in the case of the II group, although its level of labor productivity is higher than the average level for the Brazilian economy. Also, it is noteworthy to register the declining level of labor productivity of the TI and IC industry groups. However, the situation is more serious in the case of the TI group since the pace of reduction of labor productivity is more pronounced and because this group is the only one that has a lower than the average level of labor productivity among the four groups. The sole industry group that shows a somewhat increasing trend of the level of labor productivity was the AC group, but almost increasing at the same pace as the average level of productivity of the economy. Thus, in gen-eral, the four industry groups as a whole have been underperformed by the evolution of the average level of productivity in the economy.

1.9%

0.8%

6.2%

2.2%1.9%

0.8%

6.2%

2.2%2.2%

0.7%

6.6%

2.7%

2.2%

0.6%

6.3%

2.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%



20082000 2010 2014

Fig. 6 Employment share in total employment by industry group for selected periods (%). Source: Author’s elaboration based on the SNA, IBGE


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3.2.2 Competitiveness in External and Internal Markets

Let us now analyze the structural indicators of competitiveness in exter-nal markets, as given by the market share of domestic exports in world exports by industry (market share of exports), and in internal markets, as given by the market share of imports in total demand by industry (mar-ket share of imports).

From 2000 to 2014, there was an increase in the market share of imports from 2003 onward, starting from a value of 6.5% in 2003 and reaching a value of 7.4% in 2014 (see Fig. 11). Considering the four industry groups under analysis, the levels of the market share of imports of the II, IC, and TI groups are higher than the average level for economy as a whole, while the same indicator for AC group has a lower than the average value. Observe also that, among the industry groups considered, the II group has the highest market share of imports. Moreover, similarly

3.6%

2.9%

1.8%

6.1%

1.1%

0.2%

–1.0%

–0.3%

2.4%

1.6%

0.8%

3.6%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%



2000-2008 2010-2014 2000-2014

Fig. 7 Rate of growth of value added of the industry groups for selected periods (%). Source: Author’s elaboration based on the SNA, IBGE


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to what happens to the economy as a whole, for all the industry groups the market share of imports presents an increasing trend from 2003 until 2014. In the case of the II group, the indicator increased from 21.5% in 2003 to 25.3% in 2014. We observe an even more pronounced increas-ing tendency of the same indicator in the case of the TI group. The mar-ket share of imports of the latter industry group more than doubled increasing from 8.2% in 2003 to 12.0% in 2014. This result follows from the fact that this industry group was (presumably) more affected by the RER appreciation (which was very strong in the first part of the period examined) and by the low rate of growth of labor productivity (all over the whole period). Overall, this increasing trend in the market share of imports in total demand reveals that all industry groups became increasingly less competitive in the domestic markets since 2003, espe-cially in the case of the TI and II groups.

5.2%

1.1%

5.5%

4.8%

8.8%

0.8%

5.3%5.5%

6.7%

0.8%

5.5% 5.3%

6.1%

0.7%

5.0%

4.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%



2000 2008 20142010

Fig. 8 The share of the value added of the four industry groups in total value added for selected years (%). Source: Author’s elaboration based on the SNA, IBGE


81

As can be seen in Fig. 12, over the period under analysis, the IC and processed AC groups show a tendency to increase their share in total exports, while the other two remaining groups display a decreasing trend in their shares. Note, however, that in the case of the IC industry group, the increasing trend is more pronounced and starts from a higher as com-pared to the processed agricultural industry group. It follows that the former industry group became the more important one in terms of exports share. On the other hand, the TI and II groups feature a similar declining trend of their exports share, but with II starting with a higher share than the TI group and maintaining this situation along the whole period covered by our analysis.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Industrial Commodities 2.8 2.9 2.9 3.1 2.9 2.8 2.8 2.7 2.5 2.4 2.3 2.2 2.2 2.0 2.2

Processed AgriculturalCommodities

1.4 1.5 1.4 1.5 1.5 1.6 1.6 1.5 1.5 1.4 1.4 1.4 1.4 1.4 1.4

Traditional Industry 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.7 0.7 0.7 0.7 0.6 0.6 0.6

Innovative Industry 2.4 2.4 2.4 2.3 2.4 2.3 2.3 2.3 2.3 2.1 2.1 2.1 2.0 2.1 2.1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Industrial Commodities Processed Agricultural Commodities Traditional Industry Innovative Industry

Fig. 9 Labor productivity of the industry groups in relation to the average labor productivity of the economy. Source: Author’s elaboration based on the SNA, IBGE


82

Nonetheless, as we discussed above, although this evolution captures some important structural changes, it does not directly address the issue of the external competitiveness of the Brazilian industry groups. In fact, the industry composition of country exports may depend on factors such as the relative price of different export products and the industry compo-sition of world trade. These factors are relatively important in the period under analysis because China import demand exerted a huge influence over both relative prices and industry composition of world trade.

In order to overcome the limitations of the indicator based on the indus-trial composition of exports we will investigate the behavior of the market share of Brazilian exports in world exports by industry. This indicator aims to capture the competitiveness of Brazilian exports in world markets. Comparing Figs. 13 and 14, we observe a contrast between the perfor-mance of the AC and IC industry groups, on the one side, and TI and II

-0.1%

1.7%

-1.5%

0.8%

1.1%

-0.8%

1.2%

-1.8%

-0.2%

0.3%

-0.7%

1.1%

-1.5%

0.0%

1.0%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

IndustrialCommodities


TraditionalIndustry

InnovativeIndustry

Total economy

2000-2008 2010-2014 2000-2014

Fig. 10 Rate of growth of labor productivity by industry group. Source: Author’s elaboration based on the SNA, IBGE


83

groups, on the other side. The former groups show an overall increasing tendency in most part of the period under analysis, which is more pro-nounced in the case of AC industry group (from 3.3% in 2000 to 6.0% in 2014).11 In its turn, in the case of the II and TI groups the most remarkable fact is the stability of their external market shares until the 2008 world crisis. After 2008, however, we observe a declining tendency in the external market share of the TI (from 0.7% in 2008 to 0.5% in 2014) and of the II

11 Note, however, that both industry groups show a slight declining tendency in the end of the period, although the reduction of indicator was not sufficient to bring its value to a level similar to beginning of the new millennium.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Industrial Commodities 14.1% 15.3% 14.3% 12.7% 14.2% 12.0% 12.5% 13.8% 15.5% 12.5% 14.0% 14.8% 15.5% 16.5% 16.2%


5.0% 4.4% 4.4% 3.6% 3.4% 3.0% 3.3% 3.4% 3.6% 3.7% 4.0% 3.9% 3.8% 3.9% 4.0%

Traditional Industry 8.0% 9.1% 9.1% 8.2% 8.6% 7.7% 7.8% 8.5% 9.3% 9.1% 9.6% 10.0% 11.1% 12.0% 12.0%

Innovative Industry 23.8% 26.1% 24.3% 21.5% 20.3% 18.9% 19.1% 19.2% 21.2% 21.0% 21.6% 22.3% 24.3% 25.0% 25.3%

Total economy 6.73% 7.68% 7.05% 6.65% 6.73% 6.06% 6.14% 6.33% 7.21% 6.13% 6.55% 6.78% 7.16% 7.61% 7.42%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Fig. 11 Market share of imports (ratio of imports to total demand). Source: Author’s elaboration based on the SNA, IBGE


84

groups (from almost 0.8% in 2008 to 0.6% in 2014).12 Therefore, the lat-ter industry groups present a decline in their competitiveness in external markets in the second part of our period of analysis.

3.2.3 The Density of Interindustry Relations

Now let us analyze the characteristics and the evolution of the interindus-try relations over the period under discussion. Here we evaluate whether

12 Besides the contrast in terms of the evolution of the external market indicator along the period investigated, we may point out that levels of export penetration in external markets are significantly different. The traditional and innovative have an external market share of exports below 1%, while the other two industry groups present external market shares above 1%.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



15.8% 18.5% 19.4% 19.5% 18.7% 18.1% 17.4% 17.6% 17.6% 20.6% 19.2% 17.9% 18.2% 18.1% 18.3%

Traditional Industry 15.0% 14.4% 13.4% 13.2% 12.9% 11.4% 10.4% 9.9% 7.8% 7.3% 6.7% 5.7% 5.6% 5.7% 6.3%


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Fig. 12 Share of exports of the four industry groups in total Brazilian exports (%). Source: Author’s elaboration based on the SNA, IBGE


85

there was a loss in the density of such relations, as an indicator of dein-dustrialization and regressive specialization processes. In this task, we will use the total backward and forward linkage indicators (Rasmussen 1956; Hirschman 1958) and their evolution over time.13 More specifically, we will focus our attention on the characteristics of the linkage indicators related to the II group for reasons discussed earlier in this chapter.

As is well known, the total backward linkage (hereafter BL) indicator captures the direct and indirect gross output effects of a change in the final demand for the production of one industry over all supplier indus-tries. On the other hand, the total forward (hereafter FL) indicator, as

13 Note, however, that these indicators have an important deficiency. Since they are based on the input-output matrices, they cannot deal with interindustry flows involving fixed capital.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


3.3% 4.1% 4.2% 4.6% 5.1% 5.5% 5.6% 5.5% 6.0% 6.5% 6.9% 6.7% 6.6% 6.5% 6.0%


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Fig. 13 External market share of AC and IC exports. Source: Elaboration by GIC-IE/UFRJ based on COMTRADE (2017) database


86

measured here, captures the direct and indirect impact over the gross output of an industry caused by an overall change in the total final demand of the economy. A decrease (increase) in these indicators is inter-preted as a decline (rise) in the density of the domestic interindustry rela-tions. Note that these variations may follow from either a change in the technical (total) input requirements by industry or a change in the import content of intermediary demand.

From Table 1 it can be seen that all four industry groups have a BL indi-cator for gross output above the average of the economy indicating that they have an above average capacity to induce variations in gross output. However, it should be noted that, among the four industry groups, the innovative group is the one that presents the lower capacity to induce gross output. On the other hand, in the case of the FL indicator, only the IC and the TI groups present higher than average values. The smaller FL indicators

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Traditional Industry 0.6% 0.6% 0.6% 0.6% 0.7% 0.7% 0.7% 0.7% 0.7% 0.6% 0.6% 0.6% 0.6% 0.7% 0.5%


0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

Fig. 14 External market share of TI and II exports. Source: Elaboration by GIC-IE/UFRJ based on COMTRADE (2017) database


87

Tab

le 1

To

tal b

ackw

ard

an

d f

orw

ard

lin

kag

es (

2000

, 200

8, 2

010,

an

d 2

014)

an

d t

hei

r ev

olu

tio

n f

or

sele

cted

per

iod

s

Ind

ust

ries

Tota

l Bac

kwar

d L

inka

ges

Tota

l Fo

rwar

d L

inka

ges

2000

2008

2010

2014

2000

–200

820

10–2

014

2000

–201

420

00–2

014

2000

2008

2010

2014

2000

–200

820

10–2

014

2000

–201

420

00–2

014

BL_

avg

BL_

avg

BL_

avg

BL_

avg

Avg

. %

p.y

.A

vg. %

p

.y.

Avg

. %

p.y

.A

ccu

m. %

FL_

avg

FL_

avg

FL_

avg

FL_

avg

Avg

. %

p.y

.A

vg. %

p

.y.

Avg

. %

p.y

.A

ccu

m. %

1A

gri

cult

ure

, fish

ing

, an

d r

elat

ed0.

146

0.16

00.

151

0.15

21.

2%0.

2%0.

3%4.

4%0.

146

0.15

20.

146

0.14

50.

5%0.

0%−

0.1%

−0.

7%

2In

du

stri

al

Co

mm

od

itie

s0.

200

0.18

50.

188

0.19

1−

1.0%

0.4%

−0.

3%−

4.4%

0.25

10.

302

0.26

20.

275

2.3%

1.2%

0.7%

9.6%

3A

gri

cult

ura

l C

om

mo

dit

ies

0.18

90.

199

0.19

20.

189

0.6%

−0.

4%0.

0%0.

1%0.

104

0.10

20.

102

0.10

0−

0.3%

−0.

4%−

0.3%

−3.

7%

4Tr

adit

ion

al In

du

stry

0.20

40.

207

0.19

80.

199

0.2%

0.1%

−0.

2%−

2.6%

0.20

20.

196

0.19

00.

188

−0.

4%−

0.3%

−0.

5%−

7.1%

5In

no

vati

ve In

du

stry

0.17

40.

184

0.18

00.

179

0.7%

−0.

2%0.

2%2.

5%0.

140

0.14

60.

143

0.13

80.

5%−

0.9%

−0.

1%−

1.7%

6U

tilit

ies

0.15

50.

168

0.16

30.

190

1.0%

3.9%

1.4%

22.3

%0.

146

0.14

60.

148

0.15

50.

0%1.

2%0.

4%6.

5%7

Co

nst

ruct

ion

0.16

30.

183

0.16

70.

166

1.4%

−0.

1%0.

1%1.

6%0.

108

0.11

10.

110

0.10

90.

3%−

0.3%

0.1%

1.2%

8Tr

ade,

ac

com

mo

dat

ion

, an

d f

oo

d

0.15

20.

145

0.14

10.

141

−0.

6%0.

0%−

0.5%

−7.

2%0.

153

0.17

20.

171

0.17

71.

4%0.

8%1.

0%15

.4%

9Tr

ansp

ort

atio

n,

sto

rag

e, a

nd

co

mm

un

icat

ion

0.16

40.

165

0.16

00.

158

0.1%

−0.

4%−

0.3%

−4.

0%0.

185

0.18

80.

185

0.18

60.

2%0.

2%0.

0%0.

6%

10Fi

nan

cial

, in

sura

nce

, an

d r

eal

esta

te a

ctiv

itie

s

0.11

50.

120

0.11

90.

117

0.6%

−0.

5%0.

1%1.

9%0.

166

0.15

00.

148

0.14

6−

1.2%

−0.

4%−

0.9%

−11

.9%

11C

om

mu

nit

y, s

oci

al,

and

per

son

al

serv

ices

0.13

50.

135

0.13

30.

131

0.0%

−0.

4%−

0.2%

−3.

2%0.

197

0.18

70.

187

0.19

3−

0.7%

0.8%

−0.

1%−

1.9%

Tota

l eco

no

my

aver

age

0.16

40.

168

0.16

30.

165

0.4%

0.3%

0.1%

0.8%

0.16

40.

168

0.16

30.

165

0.4%

0.3%

0.1%

0.8%

Sou

rce:

Ela

bo

rati

on

by

GIC

-IE/

UFR

J b

ased

on

IBG

E D

atab

ase


88

for the AC and II groups are due to the fact that these groups have a rela-tively more intensive supplier connection with the final demand of the economy than with its direct and indirect intermediate demand. However, in the case of the II group we must point out that the weak supplier con-nection to industries follows from the fact that the FL indicator is based on the input-output matrix. The latter only captures intermediate flows of products that are utilized within the same production period (circulating capital) and not the flows related to fixed capital (machinery and equip-ment) produced in the II group. Certainly, if we could take into consider-ation the flows of fixed capital products as a derived demand (similarly to what is done in the case of intermediate products), the role of the II group as a supplier for the productive system would be much more relevant.

Concerning the evolution of the BL indicators over time (see Table 1), one of the most important features observed is the difference in the pat-terns of change of the II group, on the one side, and the other industry groups, on the other side. The BL indicator for the II group presents a small accumulated increase (2.5%) between 2000 and 2014, while in the case of the other industry groups the same indicator shows a slightly declining (i.e., IC and TI) or stagnant (i.e., AC) tendency of change. On the other hand, in the case of FL indicator, we can verify (Table 1) that the IC group presents a significant accumulated change of 9.6% for the whole period from 2000 to 2014, while the other three groups show a declining trend for the same period. Nonetheless, the decline in the FL indicator of the II displays a slower pace (1.7%) than the same indicator for the AC (3.7%) and TI groups (7.1%).

Overall, changes in the BL and FL indicators of the II group present small absolute values, meaning that the II group displays some resilience to change. Therefore, the lack of significant changes (the rigidity) in the den-sity of interindustry relations of the II is another important salient feature of the period under analysis. However, observe that both the BL and the FL indicators show an increasing tendency between 2000 and 2008 and a declining trend in the period from 2010 to 2014. If this latter tendency is maintained for some time after 2014, it may lead to a major loss in the density of interindustry relations of the II group. In fact, if we combine the latter tendency with those related to a decline in the market share in world markets and an increase in the import content of intermediate and final


89

demand for the output of the II group analyzed above in this chapter, we can infer that the prospect for the latter industry group is not good one.

4 Conclusions/Main Results

After the booming years of the beginning of the new century, the disap-pointing performance of Brazilian economy in the last half of the decade aroused debates and the formulation of interpretations among econo-mists. Many analyses grounded on structuralist and Keynesian/Kaldorian perspectives consider that this evolution expresses a broad structural change whereby deindustrialization (measured by manufacture ratio to GDP) and regressive specialization (measured by the export ratio of pri-mary goods and industries based on natural resource in total exports) constrained economic growth and depressed investment and technologi-cal perspectives of the Brazilian economy.

We argue in this work that the usual indicator of deindustrialization, the share of manufacture in value added, of trade regressive trade special-ization, measured by manufacture share in total exports, and the standard classification of industries according to their technological contents pres-ent some important methodological problems and ambiguities.

Thus, in order to examine the transformations of the Brazilian produc-tive structure over the years under analysis we used a methodology and the following indicators of structural change that in our view presents fewer ambiguities than the ones utilized currently:

a. The share of the value added (and employment) of the II group in total value added (and employment);

b. The competitiveness indicators such as given by the market share of domestic exports in world exports by industry (export ratio) and the market share of imports in total supply by industry and (import ratio);

c. The density of the interindustry relations as captured by the input- output linkage indicators.

We analyzed the evolution of Brazilian economy from 2000 to 2014 and obtained three main conclusions on the evolution of the Brazilian productive structure:


90

1. The increase of the investment-output ratio that occurred in the first decade of the new century had a positive impact on the share of the value added of manufacturing industry in total value added and on labor productivity; its decline in the second decade pushed this ratio and productivity downward;

2. The II group (the set of industries that most contribute to the technologi-cal diffusion process in the economy) increased its share in the total econ-omy’s gross output in the first part of the period and lost it in the second part. Considering its share in total value added we find the same pattern of an increasing trend of the indicator in the first part of the period fol-lowed by a decreasing trend in the second part. The share of II group in total value added was almost the same in 2000 and 2014. Hence, we cannot conclude that there was a process of (meaningful) deindustrializa-tion ongoing in the Brazilian economy based only on this indicator.

3. However, considering our competitiveness indicators, the market share of export and import, we observe that in the case of the II group there was significant loss of competitiveness of Brazilian enterprises in domestic and in external markets after the 2008 world crisis. In fact, the crisis seems to have intensified the competitive struggle in external and internal markets disputed by Brazilian enterprises. The loss of competitiveness that characterizes the second half of the period under analysis provides some support for the idea that the Brazilian economy has been subject to a process of deindustrialization and regressive specialization. In order to evaluate how far this loss of competitiveness has affected the Brazilian manufacturing system requires an investiga-tion of the density of the interindustry relations.

4. The density of the interindustry relations of the II group, measured by input-output linkage indicators, presented small changes between 2000 and 2014. However, we showed that the BL and the FL indica-tors present an increasing tendency between 2000 and 2008 and a declining trend in the period from 2010 to 2014. If this latter ten-dency is maintained for some time after 2014, it may lead to a major loss in the density of interindustry relations of the II group.

If we combine the latter tendency with those related to a decline in the market share in world markets and an increase in the import content of


91

intermediate and final demand for the output of the II group analyzed above in this chapter, we can infer that the prospect for the latter industry group is not a good one. Nonetheless, according to our analysis, the effect of the loss of competitiveness of the II group in external and internal markets is not very significant, at least until 2014. Therefore, although we found some support for the deindustrialization and regressive specializa-tion thesis in the Brazilian economy, we conclude that so far the intensity of such processes of structural change has not been very high.

Appendix: Correspondence Tablea

11 Sectors 42 Sectors

Agriculture, fishing, and related

Agriculture, forestry, livestock, and fisheries

Industrial commodities group

Extraction of oil and gas, including support activitiesExtraction of iron ore, including processing and

agglomerationOther mining and quarryingOil refining and coking plantsManufacture of biofuelsManufacture of other organic and inorganic

chemicals, resins, and elastomersCement and other nonmetallic mineral productsManufacture of steel and its derivativesMetallurgy of nonferrous metalsMetal products—exclusive machinery and equipment

Processed agricultural commodities group

Manufacture of tobacco productsManufacture of wood productsManufacture of pulp, paper, and paper products

Traditional industry group

Food and drinksManufacture of textilesManufacture of wearing apparel and accessoriesManufacture of footwear and leather goodsPrinting and reproduction of recordingsPerfumery, hygiene, and cleaningManufacture of pesticides, disinfectants, paints, and

various chemicalsRubber and plasticsFurniture and products of various industries &

Machinery and equipmentb

(continued)


92

11 Sectors 42 Sectors

Innovative industry group

Pharmaceutical productsFurniture and products of various industries &

Machinery and equipmentb

Household appliances and electronic materialAutomobiles, trucks, and busesParts and accessories for motor vehiclesOther transportation equipment

Public utility Electricity generation and distribution, gas, water, sewage, and urban cleaning

Construction ConstructionTrade, accommodation,

and foodTradeAccommodation and food services

Transport, storage, and communication

Transporting, warehousing, and mailInformation services

Financial intermediation, insurance, and real estate services

Financial intermediation, insurance, and supplementary pension and related services

Real estate activities and rentals

Community, social, and personal services

Business and family services and maintenance servicesPublic administration, defense, and social securityPublic educationPrivate educationPublic healthPrivate health

aTo make comparable all the years analyzed in this piece, as occurred a change in Brazilian’s National System Account, this correspondence table is based on other correspondence tables. The first one relates the data retropolated for 2000 and 2009, with 51 sectors that was converted to 42 sectors. The second one relates the new sector classification published data (67 sectors), that also was translated to 42 sectors. All the correspondences were done taking into consideration the official Brazilian SNA classification standards

bAs is not possible to disaggregate the aggregated sector “Furniture and products of various industries & Machinery and equipment”, it was applied a proportion of 19.82% to the Traditional industry and its complement to the Innovative Industry. This represents the Furniture and products of various industries’ production proportion in the aggregated sector when the disagreed information is provided, for the year 2010

(continued)


93

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Abelardo Mariña Flores and Sergio Cámara Izquierdo

1 Introduction

The Mexican economy underwent an expansive long wave of rapid capital accumulation from the mid-1930s until the beginning of the 1980s. The structural foundation of this long wave was the elevated levels of profit-ability that emerged from the structural transformations of the world and Mexican economy that took place during the interwar period and that were reinforced during World War II (WWII). This favorable economic scenario was complemented by the social and institutional context origi-nated from the Mexican Revolution and its aftermath, which gave rise to a Mexican state strongly committed to the development of the economy and to the promotion of productive investment. A boisterous public investment in industrial productive plant was crucial for the initiation of the process of import substitution industrialization (ISI) prompted by

A. Mariña Flores (*) • S. Cámara Izquierdo Universidad Autónoma Metropolitana-Azcapotzalco, Mexico City, Mexicoe-mail: [email protected]



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the collapse of global trade and capital flows during the Great Depression and WWII. A continued public investment effort and a Keynesian-inspired economic policy were essential for the continuation in the post-war era of the ISI regime of accumulation, heavily oriented toward the domestic market (Mariña Flores and Cámara Izquierdo 2016, 168–170).

An examination of the main characteristics of the expansive long wave is enlightening, especially when compared with the later performance of the Mexican economy during the last three and a half decades. The rate of growth of GDP averaged a robust 6.2% between 1933 and 1981, which is explained for the 1940–1980 subperiod by a remarkable productivity growth and by a sound process of job creation, both increasing at a 3.1% average annual growth rate.1 Both phenomena are related to a very dynamic process of capital accumulation, as shown in a growing investment share in the GDP along the whole period 1933–1981: from an average of 10% in the 1940s and 17.5% in the 1950s and 1960s to 26.8% in the 1970s. Another vital feature of the long wave was the expansion of real wages since the end of the 1940s to mid-1970s: the real minimum and average manu-facturing wages grew at an average annual rate of 5% and 3%, respectively. This increase is closely related to the role of the domestic market as the motor of accumulation during the 1950s, 1960s, and, to a lesser extent, 1970s. As shown in Fig. 1, domestic production was increasingly oriented toward the domestic market and covered an increasing proportion of the domestic final demand during the 1950s and 1960s, and the elevated levels around 90% of both proportions were maintained during the 1970s.

The strong process of capital accumulation came consistently with a tendency of the rate of profit to fall, which manifested in Mexico since the second half of the 1960s and endured until the mid-1980s. The first symptoms of the profitability crisis were the weakening of private produc-tive investment and inflationary pressures since 1969, which translated into devaluation pressures a few years later. This scenario heavily contrasts with the low inflation rates and the stability in the exchange rate, under a fixed regime from 1956 to 1975, of the previous period. The stabilization pact with the International Monetary Fund (IMF), after the 1976–1977

1 The employment data needed for the calculations come from Peralta (Peralta Solorio 2016: Table 2), who offers revised data from the population census.

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balance of payments crisis, signaled the shape of the imminent structural transformation of the Mexican economy along with the international pat-terns: wage restraint, external opening and flexible exchange rate, restric-tive fiscal, and monetary policies, and so on.

The structural crisis, as well as the adjustment policies (except the wage restraint), could be postponed, though not averted, as a consequence of the cyclical oil boom (1977–1981) generated by the soaring prices in a context of the discovery of vast reserves, along with the availability of loanable funds at low interest rates in the international money markets, even negative in real terms. This situation reinforced the escalation of public expenditure and investment that had been taking place to com-pensate the declining role of the private sector as a result of the profit-ability crisis and provoked the appearance of a fiscal deficit. The external indebtedness and the current account deficit of the Mexican economy were also bolstered, exposing the limits of the ISI regime of accumula-tion. The change in the international context of interest rates and oil

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Fig. 1 Domestic market as motor of accumulation, Mexico, 1950–2016. Source: System of National Accounts of Mexico, base years 2013, 2008, 1993, 1980, 1970, 1960, 1950, Instituto Nacional de Estadística y Geografía (INEGI)

The Manufacturing Sector in Mexico During the Neoliberal…

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prices dragged the Mexican economy into a new balance of payments crisis and a severe cyclical recession (1982–1983). The structural nature of the crisis could not be longer concealed (Ibíd., 170–175).

The restructuring of the general conditions of capital valorization that followed the profitability crisis has been widely termed neoliberalism, a pro-cess aimed at counteracting the fall in the general rate of profit and recover-ing its level. At an international level, the global patterns of the neoliberal restructuring can be analyzed under three main independent, though closely interrelated, mechanisms: precarization of labor, globalization, and finan-cialization. The precarization of labor was intended to recover the levels of the general rate of profit at the expense of the labor class. The neoliberal globalization was meant to counteract the falling profitability through the expansion of capitalist production into new geographical (deregulation of international capital flows and new international division of labor, incorpo-ration to the capitalist market of the Soviet bloc and China, etc.) and sec-toral spaces (privatization of public companies, suppression of non-capitalist forms of production, etc.). The neoliberal financialization was aimed at reac-tivating the profitability of the financial spaces and mechanisms of valoriza-tion through the deregulation of the financial markets and the sharp increase in real interest rates. The specific shape taken by the global neoliberal restruc-turing is also explained by the relative weakness of the working class against capital, incapable of confronting the new scenario of rising inflation and decreasing employment during the 1970s, the upsurge of financial markets, instruments, and companies since the end of the 1960s, and the strengthen-ing of transnational companies in the context of the continued hegemony of the United States (Ibíd., 175–176).

The neoliberal restructuring in Mexico tracked these global patterns and acquired specific features related to the particularities of the Mexican economy and society. First, the weakness of the working class was par-ticularly acute in Mexico as a result of decades of union corporatism, political clientelism, and repression, which in turn translated into a per-vasive and deep precarization of labor. Second, the external fragility of the Mexican economy throughout the structural crisis of profitability, which induced dire economic situations during the cyclical crises, enabled the international economic organisms (IMF and World Bank) to abruptly impose their neoliberal agenda. To this end, it was crucial the prevalence of the most cosmopolitan, financialized, and authoritarian power group


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in the inner struggle within the capitalist classes that settled in the elec-toral fraud of 1988. Consequently, the neoliberal restructuring in Mexico was further characterized by an indiscriminate opening to foreign trade and investment, and a deep subordinate financialization (Ibíd., 176–178).

The neoliberal restructuring gave way to a contractive long wave of capital accumulation that still persists. Despite the efforts to recover the profitability from its low levels by a regressive income distribution, the general rate of profit only ceased its tendency to fall given the continued decline in the productivity of capital (Mariña Flores 2003, 149–150; Cámara Izquierdo 2009, 188–192). The rate of growth averaged a mea-ger 2.2% in 1982–2016 because of the sharp decline in the growth of employment (1.4%) and, particularly, productivity (0.8%), giving rise to an extensive model of economic growth. The poor economic perfor-mance is explained by a weak process of capital accumulation, with the investment share in the GDP down to 22.5% in the period 1982–2016. This performance goes together with an increasing role of the foreign demand as the motor of accumulation and a stagnation of the domestic market; the proportion of the domestic total and final demand covered by the domestic production decreased heavily since 1982, while domestic production was increasingly oriented toward the foreign markets (Fig. 1).

This chapter analyses the transformations of the Mexican manufactur-ing sector during the neoliberal period. Besides this introduction, the analysis is carried out through five sections. In the second section, the general characteristics of the neoliberal restructuring of the manufactur-ing sector are examined; particularly, it is emphasized the central role played in this process by the precarization of labor as a precursor and result of the external opening. The third section analyzes the articulation of the manufacturing sector to the world market and the effects of inter-national competition in the performance of its various subsectors, distin-guishing among the different stages of the external opening. The fourth section evaluates the main structural changes experimented by the manu-facturing sector through the analysis of the relative dynamics of its different subsectors: GDP, Foreign Direct Investment (FDI), investment, productivity, employment, and real wages are examined. In the fifth sec-tion, a critical evaluation of the manufacturing export-led accumulation model that has emerged from the neoliberal restructuring processes is presented. Finally, conclusions are drawn in the last section.


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2 The Neoliberal Restructuring of the Manufacturing Sector

The major transformations of the manufacturing sector during the neo-liberal period relate to the external opening of the Mexican economy, a process that starts not earlier than 1982. The nature of these transforma-tions and its chronological deployment are analyzed in Subsect. 2.2. Notably, these structural transformations were preceded by a sharp reduc-tion in real wages that starts as soon as 1977. Beyond the temporal gap, it is argued in the next subsection that there is a strong casual correlation between the precarization of labor and the indiscriminate nature of the external opening of the Mexican economy.

2.1 The Precarization of Labor: Prelude and Finale of the Neoliberal Restructuring

In 1977, under the IMF adjustment and stabilization program signed in September of the previous year, the policy of nominal wage restraint was implemented in Mexico. The immediate mechanism of application of the policy was the fixation of the nominal wages, which fell behind the inflation rate. Certainly, the deterioration of wages was hastened by the elevated infla-tion in the context of the profitability structural crisis and, especially since 1982, by the successive cyclical crises that reduced the bargaining power of the working class. By 1983, when the external opening started to be imple-mented, the minimum wage had already lost 31% of its purchasing power. The “success” of this policy is also reflected in the decline of the real wage of the manufacturing sector, which fell 26% between 1977 and 1983. In 1988, when the second stage of external opening began, the previous figures reached the appalling levels of −53% and −37%, respectively.

This sharp devalorization of labor power was not enough to boost the competitiveness of the core segments of the Mexican ISI model. The ISI, which reasonably completed the import substitution of non-durable and durable final goods, partially of intermediate inputs and to a lesser degree fixed capital goods, implied the specialization in primary and manufactur-ing consumer and intermediate goods produced for the domestic market


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in technologically and organizationally outdated processes. On the con-trary, the devalorization of labor power effectively contributed to reinforce the low-technology industrial segments which were intensive in the employment of low-skill workers whose competitiveness relies heavily on low wages; these segments were already robust at the beginning of the neoliberal period because of the expansion in the 1970s of “maquila” pro-duction and exports based on the Border Industrialization Program.2 During the first stages of the external opening (1982–1993), transnational corporations widely utilized the tax-exemptions to the maquila exports regime, which was extended beyond the borders to all the Mexican terri-tory in 1985. The rapid and indiscriminate nature of the external opening was, therefore, strongly determined by the precarization of labor that had taken place since the late 1970s, along with the political, social, and insti-tutional framework that nourished the process (see Subsect. 2.2). Most remarkably, the competitiveness of the manufacturing export industry that emerged from the process of external liberalization firmly depends on the maintenance and deepening of the low labor cost arrangement, converting the precarization of labor not only a precursor of the specificities of the external opening but also its constantly renewed fundamental outcome.

Actually, the intensification of the liberalization process that arose from the resolution of the “dispute for the nation” after the electoral fraud of 1988 was grounded on the Economic Solidarity Stabilization Pact of December 1987, later renewed several times until November 1994. These pacts institutionalized the antilabor policies by means of wage ceilings and ex-post indexation (Dussel Peters 2000, 50, 66–67, and 146) and were accompanied by the destruction of collective bargain-ing under the umbrella of the corporatist union system. Additionally, the precarization of labor was complemented by the pressures of the interna-tional institutions and the private sector to increase the flexibility of the conditions of sale, productive consumption, and reproduction of the labor force. The first attempt started with a tripartite dialogue in 1993

2 This program emerged in 1965 to compensate the negative effects on employment of the cancel-ation of the Mexican Farm Labor (Bracero) Program, but also as an early attempt to develop a manufacturing export industry based on the swelling strategy of the transnational corporations to allocate some of their assembly lines of production in low-wage countries (Douglas and Hansen 2003: 1050–1055).


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that, after a 1994–1995 interruption, was resumed in 1996 and led to the publication of the principles of the New Labor Culture. Despite a signifi-cant legal reform was not implemented then, labor conditions changed dramatically (Ortega and de Alba 1999; Dussel Peters 2000, 144–148).3 The pension system was privatized since 1997 for private workers and in 2007 for public workers. When the legal labor reform was finally intro-duced in September 2012, the flexible labor practices conducted by decades were legalized and the precarization of labor was consolidated.

In conclusion, the new neoliberal labor regime is the result of a multi-faceted precarization of labor. Its quantitative dimension is related to the sharp decline in real wages. The qualitative precarization of labor relates to the neglection of the link between the wage and the means of living of the workers, and the treatment of the wage as a mere cost of production linked to productivity. Also, the reproduction of labor takes place in the context of employment instability, total or partial unemployment, inten-sification of labor, flexible working days, decrease in the coverage of social benefits, etc.

2.2 Indiscriminate Nature and Stages of the External Opening

The expansive long wave of capital accumulation dominated by ISI was characterized by developmentalist industrial and trade policies that imposed quantitative restrictions to foreign trade, especially of consumer goods, and investment flows, by requiring a majority national ownership of firms operating in the country, and oriented accumulation toward the domestic markets. In a short and abrupt process in the neoliberal period, the Mexican economy was radically liberalized to foreign flows of trade and investment, along with general processes of deregulation of the eco-nomic activity. The process of external opening of the Mexican economy followed the patterns of the neoliberal restructuring of the global economy and has consequently been nurtured by its extreme asymmetrical nature.

3 “Thus, separate from the formal reform of federal labor laws, labor and working conditions have already changed de facto” (Dussel Peters 2000: 148).


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The new articulation of the Mexican economy to the world market has been characterized by the accelerated and indiscriminate nature of the external opening, which is corroborated by the rapid transformation of Mexico from a highly closed economy to one of the most open in the world, and by the extreme subordination to the US economy and transna-tional corporations (Mariña Flores 2009).

Beyond its pace and scope, the indiscriminate nature of the external opening can be further evidenced in two aspects. First, the process was subordinated to the new neoliberal strategies of geographic relocation of the transnational companies, especially US-based. As we will show below in detail, the export boom of the manufacturing sector is highly depen-dent on the maquila and is essentially restricted to the United States, for which Mexico constitutes a privileged export platform; also, it implied an even greater increase in imports associated to the intra-firm trade of transnational companies. Second, the Mexican state resigned to the role of promoting development and a blind confidence was placed in an extreme deregulation of economic activity, deepening the asymmetric structure of the Mexican economy. The involvement of the new group of policymakers educated in the United States in the neoclassical economic ideologies contributed to this policy shift (Dussel Peters 2000, 49–50). Under this economic and political context, the formulation of economic policies (mainly fiscal, monetary, and exchange rate policies) was subor-dinated to the interest of transnational capital of both national and for-eign ownership.

The formal trigger of the implementation of the indiscriminate foreign opening was the burst of the cyclical debt crisis in 1982 and subsequent IMF intervention; in November 1982, the Mexican government signed a pact with the IMF that included the rationalization of protectionism (Guillén Romo 1990, 45–48). Beyond the external pressure, the liberal-ization was also pushed by a local private sector that had increasingly confronted with the government’s developmentalist policy and state interventionism (Dussel Peters 2000, 47). The initial stage of neoliberal external opening prolonged during the chronic external debt crisis (1982–1987). The early measures to liberalize foreign trade included the gradual reduction of import license requirements and reference prices,


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the agreement with the United States to reduce compensatory rights and subsidies, and the accession to the General Agreement on Tariffs and Trade (GATT) in 1986 (Mariña Flores 2005, 390). Simultaneously, early measures to liberalize foreign investment were also taken. In 1984, 100% foreign capital companies in hi-tech export sectors and transnational affiliates in Mexico were allowed. Additionally, the maquila program was extended beyond the northern border in 1985 (Clavijo and Valdivieso 2000, 24–26).

The pacts of December 1987, elaborated by the next president’s team, marked the launch of the second stage of effective liberalization, once the 1986 cyclical crisis was left behind and Salinas, the elected president, favored the most pro-liberalizing option. The policies implemented leaned toward the stabilization of the macroeconomy: neutral macroeco-nomic policies, control of the inflation rate and stable fiscal policy, stabil-ity in the exchange rate, privatization of state-owned companies, and the acceleration of the external opening (Dussel Peters 2000, 51–582). This stage was characterized since its beginning by the new administration’s abandonment of a general industrial policy. During 1988–1993, the remaining quantitative restrictions to imports were virtually eliminated and the trade tariffs, which had remained relatively high in the initial stage, were drastically reduced for most sectors, largely as a means to decrease inflationary pressures, with a few exceptions in some other sec-tors with relevant transnational corporations’ participation.

The liberalization process was redirected since 1990 onwards from a combined US-multilateral strategy to a practically unilateral US ori-ented one. The slow advancement of the GATT-WTO Uruguay round, which started in 1986, led the United States to privilege the instrumen-tation of bilateral trade agreements. As a result, the North American Foreign Trade Agreement (NAFTA) became the most notorious ele-ment of the neoliberal process of foreign trade opening of the Mexican economy. Negotiated along this period, and entering into force in January 1, 1994, it has been the main explanatory factor of the radical subordination of the Mexican economy to the United States. Thirdly, capital account liberalization was also strengthened. The number of sectors open to foreign investment was gradually increased. Also, the


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legislation on foreign investment was reformed to meet NAFTA’s requirements in December 1993 (Mariña Flores 2001, 2005, 390; Clavijo and Valdivieso 2000, 15–19 and 24–26).

The third stage of the neoliberal external opening started in 1994 with the implementation of the NAFTA in successive stages along a 15-year period, which included the elimination of non-tariff trade restrictions, the removal of most tariffs, and the treatment of foreign investment on the same basis as the national one. Accordingly, this stage was character-ized by the articulation to the global value chains through a subordinated economic integration with North America and, specially, with the United States (Mariña Flores 2005, 391). The liberalization tendencies of the successive Mexican governments were corroborated with the signature of trade and investment agreements with multiple countries, most of them economically insignificant. The third stage was also characterized by the implementation of deeper liberalization policies like the labor market flexibilization, the reform of the social security system, the consolidation of the neoliberal social policy based on focalized programs, and the priva-tization of national strategic sectors (Dussel Peters 2000, 53–54).

3 The External Opening of the Manufacturing Sector

The main transformations of the Mexican economy resulting from the external opening took place since 1994 onwards, given the combined effects of the implementation of the NAFTA and the peso devaluation associated to the 1994–1995 crisis. Nonetheless, the Mexican economy and the manufacturing sector underwent significant changes since the early 1980s caused both by the effects of the deep and long cyclical crises of the decade and by the measures taken in the first two stages of the exter-nal opening. The first subsection describes the external opening of the manufacturing sector during the period 1982–1993. The next subsections are dedicated to the NAFTA period 1994–2016, which is divided into three different subperiods. The first years of the implementation of the NAFTA (1994–2000) relate to the heyday of Mexican neoliberalism and


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encompass the 1994–1995 cyclical crisis in Mexico and the subsequent strong recovery, spurred by the cyclical boom of the US economy—the Clinton boom—in the 1990s. The 2001–2007 period evidences the limits of the neoliberal regime of accumulation in Mexico as a consequence of the increased competition in international trade from the Asian and Central American economies. Finally, the 2008–2016 period relates to the global crisis of neoliberalism.

3.1 The Early Opening of the Manufacturing Sector (1982–1993)

During the ISI period until 1981, the manufacturing sector was essen-tially oriented to satisfy the domestic demand. The value of exports in relation to the gross value added of the manufacturing sector in the period 1970–1981 fluctuated between a minimum of 10.8% in 1971 and a maximum of 17.2% in 1977, averaging a meager 13.9% (Table 1). The same figure for the total economy averaged 8.6%, evidencing the domestic orientation of overall production. Indeed, manufacturing exports increased at a slower pace than total exports in 1970–1982. Consequently, the manufacturing share of exports in relation to total

Table 1 Goods and services trade, Mexico, 1970–1981

Total economy Manufacturing

Share of manufacturing

Value of exports (current prices)

Average proportion of GDP

8.6% 13.9% 32.1%

AAGR in constant prices

11.9% 6.7%

Value of imports (current prices)


9.9% 35.0% 69.9%

Trade balance (current prices)


−1.3% −21.1% −282.4%

Source: System of National Accounts of Mexico, base years 1993, 1980, and 1970, Instituto Nacional de Estadística y Geografía (INEGI)

Note: AAGR: Average annual growth rate


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exports declined from 37% in 1970 to 23% in 1982, which is partially explained by the oil boom in 1977–1981 (Fig. 2).4

The declining role of the manufacturing exports in this period took place despite the boost of the maquila in the northern border since 1965. The share of maquila exports increased sharply in relation to total manu-facturing exports to over 50% and to total exports to over 20% in 1975. The oil boom reduced both shares, which stabilized around 40% and 13%, respectively (Fig. 3). Nonetheless, the maquila segment of the manufacturing was still a minor proportion of the sector; the gross value of exports of the export maquila subsector (equivalent to the gross value of production) in relation to the gross value of production of the manu-facturing sector only grew mildly from 1.19% to 2.24% along the period 1970–1981 (Mariña Flores 2005).

4 Mariña Flores (2005) provides an additional insight of the changing role of the manufacturing sector during the period 1970–1981 and the early stage of the external opening. In the period 1970–1981, the value of exports in relation to the gross value of production of the manufacturing sector averaged 6.1%, just above the 6.0% for the overall economy. In fact, the export share of the gross value of production of the nonmaquila component of manufacturing averaged only 3.7% in the same period, implying that the transformation industry produced almost exclusively for the domestic market.

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Fig. 2 External opening, Mexico, 1970–2016. Source: See Table 2. Note: The different stages of analysis are shown consecutively in light and shadow areas


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The situation evolved in a different direction since 1982. The ratio of exports to the gross value added increased from 12% in 1981 to 47% in 1993, with two sharp expansions during the devaluations of 1982–1983 and 1986 that were sustained in the aftermath of these cyclical crises (Fig. 2). While the 1982–1983 increase owes mostly to the contractive effects of the crisis, the one of 1986 already reveals the effects of the trade agreements with the United States in the previous year and the accession to the GATT. In contrast to the previous period, manufacturing exports grew at a faster rate than total exports (Table 2). Consequently, the man-ufacturing share in total exports increased steeply to 70% in 1993, which is also partly explained by the declining value of oil exports (Fig. 2). Thus, the manufacturing sector gradually converted into an export sector.5

5 During these early years of external opening, the expansion of manufacturing exports rested foremost on the maquila subsector; the participation of the maquila in exports grew from 42.1% in 1982 to 50.4% in 1993. Nonetheless, the (nonmaquila) transformation industry also increased

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Fig. 3 Maquila exports (current prices), Mexico, 1970–2016. Source: System of National Accounts of Mexico, base year 1993, INEGI; Estadística de la Industria Maquiladora de Exportación, INEGI. Note: Data from 2007 onward include not only maquila, but all manufacturing exports included in the IMMEX Export Promotion Program that substituted the maquila program in 2006. Total maquila includes nonmanufacturing maquila exports; no data available for 2007 and 2008


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The effects of the cyclical crisis of 1982–1983 prevented until 1985 that the expansion of exports turned into an increment of imports. In contrast and despite the peso devaluation, manufacturing imports increased intensely in 1986, reflecting the effects of the first measures of the external opening; the relation of imports to the GDP in the manufacturing sector reached 72% in 1993 versus 33% in 1985 in a reverse process of de-substitution of imports (Fig. 2).6 Therefore, the success story of the export increase during the period 1982–1993 was dramatically relativized by the subsequent increase in imports (Table 2). In fact, the early stage of external opening of the Mexican economy barely improved the vast deficit of the manufacturing sector during the ISI, and could not prevent the deterioration of the overall economic trade deficit (−1.8% of GDP) (Tables 1 and 2).

This early period of the neoliberal external opening started to evidence its strong heterogeneous nature. While the exports of the manufacturing sector grew 14.4% annually in real terms from 1982 to 1993, the diverse manufacturing subsectors scattered up and down this figure (Table 2). Except for nonmetallic mineral products, the sectors with a higher growth of exports are also the sectors with a higher increase in the rate of exports to the gross value added. Figure 4 shows the relationship between both types of export growth; there is a positive relationship between them, as evidenced in the linear trend.7 Also, the figure allows the identification of the most competitive sectors in the foreign market in the early neoliberal external opening in the upper right quadrant: primary metals, wood, fab-ricated metal products, and machinery. The latter sector concentrated more than 60% of the manufacturing exports in 1982–1993 (Table 2). On the contrary, the less dynamic sectors are clustered in Fig. 4 in the

its export share of the gross value of production from 4.5% in 1982 to 11.9% in 1986, remain-ing stable afterward (Mariña Flores 2005).6 To a great extent, the expansion in imports is the consequence of the increment in the imported component of the supply of manufacturing intermediate goods that took place also since 1986, increasing from 17.9% in 1985 to 27.5% in 1993. Consequently, the imported component of the intermediate goods employed in the manufacturing sector increased from 18.2% in 1985 to 27.4% in 1993. Part of this increase is attributable to the growing relative weight of the maquila, which imported steadily around 90% of the intermediate inputs in the period (Mariña Flores 2005).7 Miscellaneous manufacturing is omitted of the analysis of the manufacturing subsectors in the chapter. It is a very heterogeneous sector whose composition has changed significantly over time.


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Table 2 Trade of goods and services, Mexico, 1982–2016

Total economy

Manufacturing

Food, beverages, and tobacco

Textile, apparel, and leather Wood

Paper, printing, and related activities

Value of exports

% GVA

1982–1993 14.4 44.2 12.3 27.3 51.6 14.31994–2000 25.4 99.7 17.8 11.0 109.6 32.72001–2007 26.7 122.3 17.1 143.2 93.0 43.72008–2016 33.4 162.4 25.2 108.1 109.3 43.3

Share (%)

1982–1993 63.4 6.0 7.0 2.1 0.91994–2000 80.2 3.8 9.5 1.5 0.82001–2007 79.5 3.5 7.0 0.8 0.82008–2016 81.8 4.3 3.1 0.6 0.6

AAGR 1982–1993 8.1 14.4 4.4 11.9 26.6 4.71994–2000 11.8 18.3 10.8 22.9 5.9 21.22001–2007 3.6 5.2 6.1 −5.3 0.6 6.72008–2016 4.7 6.0 5.0 0.9 5.6 1.3

Value of imports

% GVA

1982–1993 16.1 63.6 17.9 30.8 55.6 63.51994–2000 26.2 115.1 19.7 98.1 94.6 101.52001–2007 28.4 148.3 26.4 158.8 160.9 148.42008–2016 35.0 190.6 32.8 204.5 210.7 170.0

Share (%)

1982–1993 81.2 6.1 5.5 1.6 2.91994–2000 81.5 3.7 6.7 1.1 2.22001–2007 78.7 4.5 6.4 1.2 2.42008–2016 91.4 4.0 5.0 1.0 2.2

Trade balance

% GVA

1982–1993 −1.8 −19.4 −5.6 −3.6 −4.0 −49.21994–2000 −0.8 −15.4 −1.9 22.9 15.0 −68.72001–2007 −1.7 −25.9 −9.4 −15.6 −67.9 −104.72008–2016 −1.7 −28.2 −7.6 −96.4 −101.4 −126.8

Share (%)

1982–1993 −225.7 −6.2 −2.1 −0.4 −7.41994–2000 −81.7 −2.6 11.6 1.3 −11.12001–2007 −269.7 −9.1 −3.6 −2.8 −9.62008–2016 −75.3 −7.5 −15.9 −3.3 −10.9

Source: System of National Accounts of Mexico, base years 2013, 2008, 1993, and 1980, Instituto Nacional de Estadística y Geografía (INEGI); Balanza de Pagos, Sistema de Información Económica, Banco de México

Notes: aThe constant prices data of petroleum and coal products and chemical, plastic, and rubber products is aggregated into one sector: chemical and petroleum products. bThe constant prices data and the current prices data of the period 1982–1993 of fabricated metal products, machinery, furniture; computer, and electronic and electrical products; and transportation equipment are aggregated into one sector: fabricated metal products and machinery. % GVA: Proportion in relation to the gross value added (current prices), AAGR: average annual growth rate in constant prices. For the manufacturing sector, share is the proportion of the manufacturing sector in relation to the total economy (current prices). For the manufacturing subsectors, share is the proportion of the subsector in relation to the manufacturing sector (current prices)


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Petroleum and coal products

Chemical, plastic, and rubber products

Nonmetallic mineral products

Primary metals

Fabricated metal products, machinery, and furniture

Computer, and electronic and electrical products

Transportation equipment

Miscellaneous manufacturing

18.0 25.8 24.1 38.9 93.2b 115.016.3 50.4 45.3 61.6 177.2 155.1 229.1 256.042.0 57.6 53.7 52.0 259.2 207.2 255.4 339.675.3 79.4 67.7 55.9 369.9 331.2 297.1 502.0

2.2 7.6 2.0 5.4 61.0b 5.90.6 5.7 1.5 3.5 14.4 27.3 26.3 5.11.3 5.9 1.5 2.8 17.4 26.4 26.3 6.11.6 6.0 1.1 2.4 19.7 22.9 30.7 7.0

11.6a 19.0 27.6 17.5b 23.813.5a 14.6 6.6 22.4b 15.7

6.8a 6.9 5.9 4.3b 9.23.3a 2.2 1.9 7.2b 10.1

25.4 53.0 16.2 43.6 130.2b 190.720.5 115.6 32.6 68.6 257.4 182.2 169.2 424.246.9 145.6 45.7 98.6 358.3 232.6 171.5 510.084.1 199.6 58.3 136.4 434.9 409.0 160.8 748.5

2.1 10.8 0.9 4.2 59.1b 6.80.6 11.4 0.9 3.4 18.1 27.8 16.8 7.31.2 12.4 1.0 4.4 19.9 24.5 14.6 7.61.5 12.9 0.8 5.1 19.7 24.1 14.1 8.8

−7.5 −27.1 7.8 −4.8 −37.0b −75.8−4.2 −65.2 12.7 −7.0 −80.2 −27.1 59.9 −168.2−4.9 −88.0 7.9 −46.5 −99.1 −25.4 84.0 −170.4−8.8 −120.01 9.5 −80.5 −65.0 −77.8 136.3 −246.5−2.01 −18.1 1.5 −1.5 −55.5b −8.8−0.9 −48.0 2.6 −2.6 −42.2 −31.0 44.6 −21.7−0.7 −42.8 1.0 −11.9 −31.4 −15.3 40.7 −14.4−1.1 −52.5 0.9 −20.2 −19.9 −31.0 81.0 −19.7


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Food, beverage,

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Fig. 4 Growth of exports, Mexico, 1982–1993

lower left quadrant: food, beverages, and tobacco; paper, printing, and related support activities; chemical and petroleum products; textile, apparel, and leather; and nonmetallic products. Despite its poor perfor-mance, these sectors still retained a significant share of manufacturing exports during the period, except for paper, printing, and related activi-ties and nonmetallic mineral products (Table 2).

The expansion of exports implied a correlative growth on imports in most of the manufacturing subsectors. Figure 5 shows the close relation-ship between the increase in imports and exports, both relative to the gross value added. The different manufacturing subsectors are scattered rather adjacent to the linear regression line. The sectors below the trend line had lower relative increases in imports; of the winner export sectors, only primary metals falls in this situation. On the contrary, the sectors above the trend line had higher relative increases in imports.8

8 Mariña Flores (2001) provides data on imports of intermediate goods of the manufacturing subsectors in 1980 and 1993 based on the input-output tables, which increased on average 5.7% annually for the manufacturing sector. Except for primary metals (−0.6%), the most dynamic export sectors in 1982–1993 had also high increases in the imports of intermediate goods: wood (8.6%), fabricated metal products and machinery (8.4%), and nonmetallic mineral products (7.3%). On the contrary, the


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Fig. 5 Growth of imports in relation to the growth of exports, Mexico, 1982–1993

The leading export subsectors during 1982–1993, except primary met-als, were also the most importing ones and vice versa (Table 2). Paper, printing, and related activities, chemical, plastic, and rubber products, despite not being dynamic exporting sectors, had a relatively large propor-tion of imports to gross value added. Consequently, they also suffered above average trade deficits in relation to the gross value added in the period 1982–1993. Nevertheless, fabricated metal products and machinery, the leading export sector, also experienced a huge trade deficit. Analogously, the less importing sectors, with the two exceptions just mentioned, tend to be the sectors with lower trade deficits; the only manufacturing subsector with a trade surplus, nonmetallic mineral products, is actually a rather closed sector. In fact, there is a strong negative relationship in the period between the subsectoral degree of openness and the trade balance, as evi-denced in Fig. 6. In general, during the early stage of the external opening, a greater articulation to the foreign market implied a worse trade balance.

less dynamic export sectors experienced lower increases in imports of intermediate goods, except for textile, apparel, and leather (13.0%): food, beverages, and tobacco (2.2%); paper, printing, and related support activities (4.4%); and chemical and petroleum products (5.57%). The manufacturing subsec-tor with a higher proportion of imported intermediate goods in 1993 were fabricated metal products and machinery, paper, printing, and related support activities, and chemical and petroleum products.


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Textile, apparel,leather

Wood


Petroleumand coal products



Primary metals

Fabricated metal products, and machinery

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Fig. 6 Openness and trade balance, manufacturing subsectors, Mexico, 1982–1993

3.2 The Boom of Exports During the NAFTA

The external opening received a great push with the implementation of the NAFTA in January 1, 1994. Qualitatively, it implied a sharp orienta-tion of the process to the integration within North America and an extreme subordination to the neoliberal strategies of geographic relocation of the transnational companies. Quantitatively, it implied a decisive boost to the exports of the manufacturing sector. The ratio of manufacturing exports to gross value added accelerated its growth in 1994 and exploded in 1995, encouraged by the sharp peso devaluation and economic con-traction caused by the profound 1994–1995 cyclical crisis (Fig. 2). In the aftermath of the crisis, this ratio maintained its level for a short two-year lapse and then resumed its growth, which has been steady since then. By 2016, this ratio had reached 189%. Indisputably, the manufacturing sec-tor transformed into an export sector.9 Manufacturing has been the lead-ing export sector during the NAFTA period, comprising around 80% of

9 Adding to this description, 50% of the gross value of production of the manufacturing sector was exported in 2016.


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the total exports, from the 32% average in 1970–1981 (Table 1) and the 63% average in the first stage of liberalization (1982–1993) (Table 2). The manufacturing share of exports reached a peak in 2015–2016 of 86%, given the declining role of oil exports caused by both the fall in prices and production (Fig. 2).

Despite the steady growth of manufacturing exports, a cyclical behav-ior and definite stages of the export boom can be distinguished (Fig. 2 and Table 2). On the one hand, the rate of growth of manufacturing exports shows a well-defined cyclical behavior with three exceptions which correspond to the cyclical crises and peso devaluations of 1982–1983, 1986, and 1994–1995 (Fig. 7). The latter anticyclical behav-ior reinforced the growth of manufacturing exports associated to the NAFTA implementation during the period 1994–2000, accomplishing an outstanding 18.3% average annual rate growth and representing the zenith of the export-led model of capital accumulation in Mexico (Table 2). This astounding growth of exports during the first stage of the

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Fig. 7 Cyclical growth of manufacturing exports, Mexico, 1980–2016. Note: The rate of growth of manufacturing exports is plotted in the left axis and the GDP growth in the right axis. The different stages of the analysis are separated by a vertical dotted line


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NAFTA was led by the maquila segment of the manufacturing sector, giving continuity to a tendency commencing with the Border Industrialization Program and sustained in the early stage of the external opening (1982–1993). Maquila’s share in manufacturing and in total exports reached its peak in 2002 (Fig. 3).

Export growth was later halted by the cyclical crises of 2001–2002 and 2007–2009 in the United States and Mexico and resumed at much lower levels. Particularly, it is worth noting the weak recovery of manufacturing exports after the 2001–2002 crisis, consequence of the increased compe-tition of the Asian and Central American economies, especially in the maquila textile exports; the average annual rate growth decreased to 5.2% in the 2001–2007 period. In contrast, the manufacturing exports expanded at a slightly higher rate (6.0%) during the cyclical recovery of the 2007–2009 crisis, consequence of the revitalization of the manufac-turing sector in the United States10 and the peso devaluation of 2014–2015. The more sluggish growth of manufacturing exports during the twenty-first century is concomitant with a stagnation and reduction of the maquila share in the manufacturing and total exports (Fig. 3).

At a sectoral level, the export boom manifested very heterogeneously among the manufacturing subsectors during the NAFTA period, follow-ing the tendency initiated in the early stage of the external opening. The most dynamic export sector was again fabricated metal products and machinery, while the export growth of the rest of the sectors performed below average (Fig. 8). This sector already concentrated two thirds of the exports of the manufacturing sector at the beginning of the NAFTA period, and kept increasing its export share until reaching over three quarters in 2016. Since 1993 it is divided in this analysis into three dif-ferent subsectors: fabricated metal products, machinery, and furniture; computer, and electronic and electrical products; and transportation equipment (Table 2). While the three subsectors have had substantial increases in the ratio of exports to the gross value added, computer, and electronic and electrical products, has seen its export share reduced in 8%

10 In the aftermath of the Great Recession in the United States, its manufacturing sector gained GDP share, boosted by the durable goods segment, between 2009 and 2013, reversing a long- lasting declining trend.


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points during the NAFTA period. The other dynamic export sectors dur-ing the early external opening, primary metals and wood, are among the worst performers during the NAFTA, reducing its export share to insig-nificant amounts (Fig. 8 and Table 2). Another poor performer was tex-tile, apparel, and leather, also reversing its export dynamics in the early stage and, as we elaborate below, in the first part of the NAFTA period. The rest of the sectors experienced milder export booms.

Beyond the overall performance of the manufacturing subsectors, a cyclical behavior and distinct stages can be identified during the NAFTA (Figs. 9 and 10). All of the leading export manufacturing subsectors expe-rienced a steep increase in the ratio of exports to the gross value added as a consequence of the combined effect of the 1994–1995 cyclical crisis and the implementation of NAFTA (Fig. 9). Nevertheless, only fabri-cated metal products, machinery, and furniture sustained a growing trend during all the period (1994–2016). Computer, and electronic and elec-trical products, was the most dynamic export sector during 2001–2007 and until 2010, but lost impulse after the Great Recession. The revitaliza-tion of the manufacturing sector in the United States during the global crisis of neoliberalism (2008–2016) contributed to a new milder export

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Fig. 8 Growth of exports, Mexico, 1994–2016


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boom in the period, especially for fabricated metal products, machinery, and furniture and transportation equipment.

The 1994–1995 effect was also experienced among the less dynamic export manufacturing subsectors, though with a low intensity for food, beverages, and tobacco and petroleum and coal products (Fig. 10). Of those, only textile, apparel, and leather maintained a growing trend the following years. The remarkable export growth of this sector until the mid-2000s was abruptly undermined in just four years, reflecting the increased international competition in the sector by the incorporation to the world market of China and other Asian economies. Undoubtedly, this sector was the one that evidenced in a most straightforward way the limits of the neoliberal subordinate articulation to the world market of the Mexican economy. As stated, the rest of the sectors had a mild export boom in NAFTA period. However, wood experienced a sharp decrease in the ratio of export to gross value added since the mid-1990s, only reversed in the last years, and paper, printing, and related support activities has had a slighter decrease of this ratio since the mid-2000s.

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3.3 The Dependency on Imports and the Structural Deficit

The export boom of the manufacturing sector during the NAFTA came together with a correlative expansion of imports (Fig. 2). Imports grew indeed slightly faster than exports, a situation that is even magnified if the 1994–1995 effect is omitted. Consequently, the success of the external opening in terms of the export boom disappears when its impact on imports is considered. This performance reflects the subordination of the external opening to the strategies of the transnational companies and, specifically, to their global value chains. The improvement of the trade deficit during the boom of neoliberalism in Mexico in 1994–2000 (Table 2) is the consequence of the combined effect of the NAFTA imple-mentation and the vast peso devaluation of the 1994–1995 crisis. Afterwards, the trade deficit deteriorated unceasingly, with a short inter-ruption during the 2001–2002 cyclical crisis, until the effects of the Great Recession, first, and the peso devaluation of 2014–2015, afterward,

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Fig. 10 Less dynamic export manufacturing subsectors, Mexico, 1993–2016


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slightly offset the deficit (Fig. 11). Despite this, the trade deficit still rep-resents about a quarter of the sectoral gross value added, a level much higher than the average in the 1970s, signaling its structural nature dur-ing the neoliberal period. The maquila segment had a continuous trade surplus that, nevertheless, was not enough to offset the trade deficit of the non-maquila manufacturing segment (Fig. 12).

The dependency of the export boom on imports at an aggregate level is reproduced for the different manufacturing subsectors. Figure 13 relates the growth of imports with the growth of exports during the NAFTA period (1994–2016). Beyond the positive relationship between both growths, a greater distance to the regression line than in the early stage (Fig. 4) can be detected, implying the existence of well-defined winners and losers of the external opening. Transport equipment heav-ily expanded exports with a relatively low expansion on imports. Among the less dynamic export sectors, food, beverages, and tobacco and non-metallic mineral products performed also relatively strong in the foreign markets. On the contrary, fabricated metal products, machinery, and

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Fig. 11 Trade balance, Mexico, 1970–2016. Note: The manufacturing sector is plotted in the left axis and the total economy in the right axis. Trade balance as a percentage of the gross value added and the gross domestic product, respectively


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Fig. 12 Manufacturing trade balance, Mexico, 1970–2006. Source: See Fig. 3. Note: Trade balance as a percentage of the gross value added of the total manufacturing sector



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Fig. 13 Growth of imports in relation to the growth of exports, Mexico, 1994–2016. Note: Petroleum and coal products is omitted from the figure given its outlier behavior


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furniture and computer, and electronic and electrical products, among the leading export sectors, and textile, apparel, and leather; chemical, plastic, and rubber products; wood; primary metals; and paper, printing, and related activities, among the less dynamic export sectors, performed poorly in the foreign markets during NAFTA, as evidenced in a relatively high growth of imports in relation to the growth of exports.

The long-lasting substantial structural deficit of the manufacturing sector during the NAFTA also characterizes most of the manufactur-ing subsectors, with just a couple of exceptions (Table 2). Figure 14 relates the degree of openness and the trade balance of the various manufacturing subsectors for the three subperiods of the NAFTA. As was the case during the early stage of the external opening, there is a negative relationship between both variables in the first and second

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Fig. 14 Trade balance and degree of openness, Mexico, 1994–2016. Note: Petroleum and coal products is omitted from the figure given its outlier behavior. (1) Food, beverages, and tobacco; (2) textile, apparel, and leather; (3) wood; (4) paper, printing, and related activities; (5) chemical, plastic, and rubber products; (6) nonmetallic mineral products; (7) primary metals; (8) fabricated metal products, machinery, and furniture; (9) computer, and electronic and electrical products; (10) transportation equipment


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stages of the NAFTA (1994–2000 and 2001–2007), as evidenced by the linear regression line, implying that the more open is a subsector the bigger the trade deficit. Nonetheless, this situation was reversed during the last stage of NAFTA, as shown in the flat linear trend in 2008–2016, implying that the degree of openness does not impact the trade deficit. Despite this, the overall manufacturing trade balance worsened in 2008–2016 in relation to 1982–2007.

The previous aggregate dynamics is explained by the influence of the external opening on the different manufacturing subsectors, which can be analyzed in Fig. 14 by their particular paths followed in the course of the NAFTA. Transportation equipment (10), which we have already identified as a winner subsector, moves upwards and rightwards in the successive subperiods, implying that the increase in the degree of open-ness translated into an improving trade surplus. However, these virtuous dynamics is not steadily reproduced by the other leading export sectors. The trade deficit of fabricated metal products, machinery, and furniture (8) only declines from 2001–2007 to 2008–2010, while it increases with the external opening between 1994–2000 and 2001–2007. Similarly, the trade deficit of computer, and electronic and electrical products (9) only marginally improves from 1994–2000 to 2001–2007, while it deterio-rates heavily from 2001–2007 to 2008–2016. In general, the increased articulation to the world market—rightwards path—entailed a growing subsectoral trade deficit—downwards path—for most of the sectors: tex-tile, apparel, and leather (2), wood (3), paper, printing, and related activi-ties (4), chemical, plastic, and rubber products (5), and primary metals (7), reinforcing its identification as losers of the external opening. For nonmetallic mineral products (6), though, its slightly increased articula-tion to the world market had negative effects on the trade deficit from 2001–2007 to 2008–2016 and positive effects from 2001–2007 to 2008–2016. Finally, food, beverages, and tobacco (1) only changes its position in Fig. 14 marginally, evidencing that its dynamics is essentially determined by the domestic market.


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4 The Structural Transformation of the Manufacturing Sector

The external opening transformed the manufacturing sector from a sector oriented toward the domestic market to an essentially export sector. This transformation has implied profound qualitative and quantitative changes in terms of its structure and its economic dynamics. The present section relates the foreign trade transformations with the patterns of growth, investment and productivity, and employment and wages in the manu-facturing sector.

4.1 Growth and Structural Change in the Manufacturing Sector

As described above, the manufacturing sector has undergone an intense export boom, and a correlative expansion of imports, along several differ-ent stages of the neoliberal external opening: the early stage (1982–1993), the boom of Mexican neoliberalism (1994–2000), the limits of neoliber-alism in Mexico (2001–2007), and the global crisis of neoliberalism (2008–2016). In the first two stages, this vigorous process of articulation with the world market fostered the economic growth of the manufactur-ing sector in relation to the growth of the total economy, reversing the negative trend of the sector in the last period of the ISI regime of accu-mulation (1970–1981) (Tables 3 and 4). The sectoral share in the total

Table 3 Growth, employment, productivity, and real wages, Mexico, 1970–1981


Share of manufacturing

Gross domestic product (2013 prices)

AAGR 6.8% 6.4% 17.5%

Employment AAGR 4.1% 3.5% 23.7%GDP per employee (2013

prices)AAGR 2.7% 2.6%Thousands 273 203

Real wage per employee (2013 prices)

AAGR 3.5% 2.4%Thousands 123 142

Source: See Table 1


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GDP increased from a minimum of 15.8% in 1983 to a maximum of 19.0% in 2000. The positive dynamics of the manufacturing sector dur-ing the first two periods is also explained by the sharp devaluations of the peso during the 1982–1983, 1986, and 1994–1995 cyclical crises.

The limits of the neoliberal export boom started to be evidenced in the early 2000s, associated to the increased international competition of the Asian economies, especially China. The manufacturing GDP share initi-ated a downward trend until 2009, which comprises the severe effects on the sector of cyclical crises of 2001–2002 and 2007–2009, given that significant devaluations of the peso were avoided. During the last years, the manufacturing GDP share has stagnated around 16%, a situation also helped by the peso devaluation of 2014–2015. Accordingly, the manufacturing sector only managed to sustain its GDP share during the neoliberal period. Nonetheless, this performance still compares favorably to the United States’ manufacturing sector, which has lost 7.5 percent points of GDP share in the neoliberal period.11

At a subsectoral level, the economic growth did not positively correlate with the increase in exports during 1982–1993 (Table 4 and Fig. 15). This situation indicates that the domestic market was still very important for the sector dynamics during the early stage of the external opening. The faster growing manufacturing subsectors—food, beverages, and tobacco; paper, printing, and related activities; chemical, plastic, and rub-ber products; and nonmetallic mineral products—stayed relatively closed during the period. Overall, they concentrated half of the manufacturing share in the period. On the contrary, the most dynamic export sectors—fabricated metal products, and machinery, wood, and primary metals had relatively low rates of growth, even negative in the case of wood.

The reinforcement of the process of external opening with the imple-mentation of the NAFTA consolidated the foreign market as the main determinant of the economic performance of the manufacturing subsec-tors; a positive correlation between economic growth and the growth of exports is observed in 1994–2016 (Table 4 and Fig. 16). The leading

11 Unlike Mexico, the United States, the main destination of Mexican manufacturing exports, has relatively specialized in corporate management and financial services. The data on the United States presented in this chapter come from various sources of the Bureau of Economic Analysis.


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Table 4 Growth, employment, productivity, and real wages, Mexico, 1982–2016





GDP AAGR 1982–1993 1.6 1.8 2.8 −0.3 −0.1 2.81994–2000 3.5 5.0 2.5 1.9 2.5 4.12001–2007 2.0 0.7 2.4 −3.1 −2.9 1.22008–2016 2.0 1.3 1.9 −0.2 0.2 1.7

Share (%) 1982–1993 16.9 28.1 9.2 1.7 2.41994–2000 18.2 26.1 7.2 1.3 2.42001–2007 17.8 26.8 5.6 1.0 2.32008–2016 16.6 28.6 4.7 0.9 2.5

Employment AAGR 1982–1993 1.2 0.3 1.4 −1.3 −2.4 0.91994–2000 2.4 2.1 0.7 1.7 1.2 −0.62001–2007 1.2 −1.7 0.8 −4.7 −5.0 −2.32008–2016 1.2 1.1 1.2 −1.1 −2.9 −0.9

Share (%) 1982–1993 21.5 17.3 20.5 3.8 4.51994–2000 14.1 17.4 18.2 3.2 4.22001–2007 15.3 18.6 16.1 2.5 3.92008–2016 15.7 20.3 13.3 2.0 3.6

GDP per employee

AAGR 1982–1993 0.4 1.5 1.4 1.0 2.3 1.91994–2000 1.1 2.9 1.7 0.3 1.2 4.72001–2007 0.8 2.4 1.6 1.7 2.2 3.62008–2016 0.8 0.2 0.7 0.9 3.1 2.6

Thousands 1982–1993 317 248 404 112 114 1311994–2000 344 316 476 125 131 1802001–2007 369 371 534 130 151 2192008–2016 386 408 576 145 185 287

Real wage per employee

AAGR 1982–1993 −2.5 −2.2 −1.9 −2.8 −3.3 −3.21994–2000 −0.2 −1.0 −1.7 −3.5 −1.3 −1.62001–2007 1.9 1.8 2.0 1.0 2.0 0.52008–2016 0.9 0.5 −0.5 0.1 0.0 1.1

Thousands 1982–1993 97 112 79 84 71 1161994–2000 97 105 79 66 62 1032001–2007 113 121 90 72 69 1092008–2016 123 126 89 70 72 111

Source: See Table 2

Note: aData of the period 1982–1993 of fabricated metal products, machinery, and furniture; computer, and electronic and electrical products, and transportation equipment is aggregated into one sector: fabricated metal products, and machinery


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Primary metals





1.4 3.0 2.4 1.3 1.1a 2.23.5 3.0 1.2 6.2 4.3 14.4 8.1 3.30.8 1.1 3.0 0.8 1.2 −3.2 2.5 1.6−3.6 −0.7 0.5 −1.6 1.3 0.6 5.4 2.33.9 15.9 3.0 8.1 25.6a 1.83.7 14.7 2.7 8.8 8.7 12.9 10.1 1.93.6 13.9 2.7 8.6 8.8 12.9 11.9 1.92.9 13.3 2.7 7.0 9.1 10.4 15.8 2.0−0.5 1.5 1.3 −6.0 −0.6a 6.20.7 0.5 −0.8 0.5 1.4 9.6 4.6 3.60.0 −3.6 −0.3 0.7 −1.4 −3.5 0.3 −1.10.2 −0.3 −0.5 3.3 0.1 2.7 5.6 1.00.7 12.1 4.8 2.8 30.7a 3.10.5 11.6 4.4 1.5 14.6 12.4 8.1 4.70.6 10.7 4.6 1.5 14.1 13.2 9.5 5.00.6 9.4 4.1 1.9 13.7 13.6 12.6 5.01.9 1.5 1.0 7.8 1.7a −3.72.8 2.5 2.0 5.6 2.9 4.4 3.3 −0.20.8 5.0 3.3 0.1 2.7 0.2 2.1 2.8−3.8 −0.4 1.0 −4.7 1.2 −2.0 −0.1 1.31346 325 159 761 206a 1552261 401 192 1817 189 324 389 1292389 484 220 2110 232 361 460 1392071 572 267 1560 270 314 515 167−2.4 −1.4 −2.1 −1.9 −1.2 −2.1 −2.7 −3.44.4 −0.1 −3.3 −2.6 −0.7 0.2 −1.1 −0.36.1 1.6 0.2 −0.1 1.3 2.6 1.0 3.4−3.6 −0.5 −2.4 0.8 1.5 0.3 −0.2 3.3285 161 125 273 91 146 169 66329 166 107 244 90 143 148 60530 193 109 239 101 178 167 76648 194 100 234 110 181 166 98


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Textile, apparel, leatherWood



Chemical, plastic, andrubber products


Primary metalsFabricated metal products,

machinery, and furniture

Computer, electronic, and electrical products


Manufacturing

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Fig. 16 Economic growth and growth of exports, Mexico, 1994–2016


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Gro

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Fig. 15 Economic growth and growth of exports, Mexico, 1982–1993


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export sectors of the NAFTA period—transportation equipment, com-puter, and electronic and electrical products, and in a lesser degree, fabri-cated metal products, machinery, and furniture—experienced relatively high rates of growth. Nonetheless, the domestic market was still the engine of the economic growth of food, beverages, and tobacco and paper, printing, and related activities, which preserved its GDP share. These two sectors still represent almost three tens of the manufacturing sector.

In terms of GDP share, a clear winner of the process of external open-ing noticeably arises: transportation equipment. The sector is a pillar of the new articulation of Mexico to the world market and has earned 11 percent points of the manufacturing GDP during the neoliberal period. Textile, apparel, and leather represents the opposite case; despite its encouraging dynamics until the mid-2000s, the increased competition from Asian and Central American economies affected severely the sector, which ended with a loss of 6 percent points of the manufacturing GDP during the neoliberal period.

4.2 Investment and Productivity in the Manufacturing Sector

The export boom and the vigorous growth of the manufacturing sector, especially of those subsectors that have performed better in the foreign markets, are results of a process of external opening subordinated to the global strategies of the transnational companies. These companies have sought to relocate their intensive in low-skilled labor assembly produc-tion plants in countries with a low-cost structure, especially in wages. In the case of Mexico, this relocation has also been bolstered by its privi-leged geographical location as an export platform to the United States.

The fulfillment of the transnational companies’ strategies toward Mexico can be tracked by the FDI inflows. If the total FDI received by the Mexican economy represented only 1.1% of the GDP in 1982–1993, it doubled in 1994–2000 and tripled in 2001–2007, only decreasing slightly in 2008–2016 (Table 5). The manufacturing sector attracted over half of the total FDI in the NAFTA period 1994–2016, converting it in the main destination of FDI. FDI accounted for over one third of the


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Table 5 Fixed investment and FDI, Mexico, 1982–2016





GFCF % GVA 1982–1993 21.81994–2000 21.42001–2007a 21.9 24.2 12.4 9.9 4.8 34.82008–2016a 23.0 31.0 10.4 9.6 2.7 14.8

Share 2003–2007 18.8 13.2 2.4 0.2 3.42008–2015 22.4 9.3 1.5 0.1 1.2

FDI % GVA 1982–1993 1.11994–2000 2.3 6.52001–2007 3.1 7.9 6.9 4.3 0.2 8.12008–2016 2.6 7.8 7.5 2.1 1.7 6.8

Share 1994–2000 57.42001–2007 44.3 22.1 3.3 0.0 2.42008–2016 50.9 26.4 1.3 0.2 2.1

% GFCF 1982–1993 4.91994–2000 10.92001–2007a 14.3 35.3 61.2 41.4 12.4 24.12008–2016a 11.1 24.2 75.4 20.8 63.9 39.1

Source: See Table 2

Note: GFCF: Gross Fixed Capital Formation (current prices), FDI: Foreign Direct Investment (current prices), % GVA: Proportion in relation to the gross value added, % GFCF Proportion in relation to the GFCF. For the manufacturing sector, share is the proportion of the manufacturing sector in relation the total economy. For the manufacturing subsectors, share is the proportion of the subsector in relation to the manufacturing sector. aFor the manufacturing sector and its subsectors, data are for 2003–2007 and 2008–2015


133




Primary metals





27.4 31.7 16.0 6.4 42.4 27.0 41.6 33.129.1 25.8 20.2 15.9 46.5 87.4 40.5 48.6

4.2 16.8 2.2 1.9 14.5 16.4 21.7 3.13.6 10.5 1.8 3.7 13.0 31.0 20.9 3.5

1.1 9.2 7.0 11.6 6.1 7.1 13.4 8.30.2 12.3 8.0 3.2 4.7 7.3 12.7 6.1

0.5 14.8 2.9 9.8 6.3 14.1 21.4 2.30.1 19.4 2.8 2.9 5.2 10.4 27.4 1.8

4.9 32.4 56.1 196.4 13.6 29.1 33.4 22.90.5 39.1 45.8 21.0 9.8 8.2 30.8 12.1


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Gross Fixed Capital Formation (GFCF) in 2003–2007 and almost one fourth in 2008–2015, evidencing the relevance of foreign-owned trans-national companies in the sector. Most of these inflows correspond to greenfield investment, that is, for new facilities, pointing to the role of transnational companies in the transformation of the productive struc-ture of the manufacturing sector during the neoliberal period.

FDI was directed to two types of manufacturing subsectors. On the one hand, the leading export subsectors—transportation equipment; computer, and electronic and electrical products; and fabricated metal products, machinery, and furniture—concentrated almost half of the FDI received by the manufacturing subsectors (Table 5). On the other hand, three of the less dynamic export subsectors—food, beverages, and tobacco; primary metals; and chemical, plastic, and rubber products—also gathered about half of FDI inflows, reflecting the interest of foreign- owned companies in the profitable segments of the domestic market. The subsectors receiving higher proportions of FDI to GFCF in 2003–2015 were primary metals; food, beverages, and tobacco; nonmetallic mineral products; chemical, plastic, and rubber products; and transportation equipment.

FDI has contributed to the fairly dynamic process of investment in the manufacturing sector since 200312 (Table 5). It has concentrated a large share of total investment (around one fifth) and the rate of investment—GFCF in relation to the gross value added—has been above the average of the total economy in 2003–2007 and 2008–2015, especially in the second one. Also, the rate of investment of the manufacturing sector in Mexico has been higher than the same rate in the United States (Fig. 17). Remarkably, the manufacturing subsectors with more robust processes of investment, as measured by the differential of the rate of investment in Mexico and the United States, have been the most dynamic export sectors.

Productivity growth has been strong in the manufacturing sector com-pared with the economy as a whole during the first three stages of the exter-nal opening (Table 4). It increased at an average annual rate of 1.5% in

12 Data on the fixed investment by sector are only available in the Mexican System of National Accounts from 2003 on.


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1982–1993, 2.9% in 1994–2000, and 2.4% in 2001–2007.13 These growth rates were around three times higher than the corresponding rates for the total economy. These productivity growth differentials cannot be fully explained by the stronger rate of investment of the manufacturing sector. Alternatively, it is possible to assume that the growth of productivity owes essentially to an increase in the working hours and the intensity of labor as a consequence of the increased competition to access the foreign markets. On the contrary, productivity almost stagnated in 2008–2016, a period with an even more vigorous investment process.14 The rationale behind this apparent puzzle could be one of the features of the neoliberal subordinate articulation of Mexico to the world market. Its specialization in relatively

13 The omission of the two manufacturing subsectors that appropriate a considerable amount of ground rent (Petroleum and coal products and primary metals) does not change significantly the productivity growth in any of the three stages.14 If Petroleum and coal products and Primary metals are removed, productivity growth was still a meager average annual 0.6%.

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Fig. 17 Gross fixed capital formation, Mexico and United States, 2003–2015. Source: See Table 5. The US data corresponds to the fixed assets from the Bureau of Economic Analysis


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low-technology processes has implied an investment biased to the deploy-ment of new structures with relatively low participation of machinery and equipment and, consequently, of low productivity growth. Under the neo-liberal global scenario, the general competitiveness of the Mexican manu-facturing sector has not been centrally based in productivity gains.

The previous conclusion can be substantiated with an analysis of the different subsectors. As Fig. 18 shows, there is a negative correlation between the expansion of exports and the productivity growth during the NAFTA period (1994–2016).15 Accordingly, the opening to interna-tional trade did not compel the export sectors to obtain competitive advantages based in productivity; inversely, the sectors with a higher rela-tive dependence on the domestic market were more prone to obtain pro-ductivity gains.16 This bewildering outcome, given the positive correlation of export growth with the subsector’s expansion and investment rates, can

15 The correlation of both variables is actually negative for all the different stages of the NAFTA period: 1994–2000, 2001–2007, and 2008–2016. In contrast, the growth of exports was positively correlated with productivity growth in the early stage of the external opening (1982–1993).16 In contrast, there is a positive correlation in the early stage of the external opening (1982–1993).



Wood



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Fig. 18 Productivity growth and growth of exports, Mexico, 1994–2016. Note: Petroleum and coal products and primary metals, sectors that appropriate a considerable amount of ground rent, are omitted


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be again explained by the bias in investment to new structures in relation to machinery and equipment, a situation coherent with the specialization of export industries in low-technology labor-intensive assembly (maquila- type) lines of production.

The previous general pattern can be expanded with an analysis of the competitiveness pattern of the different manufacturing subsectors (Fig. 18). Among the leading export subsectors, computer, and electronic and electrical products, had a very low increase in productivity, therefore relying more on a labor-intensive specialization pattern. In contrast, fab-ricated metal products, machinery, and furniture is relatively more depen-dent on productivity gains in its international competitiveness. Finally, transportation equipment is placed in an intermediate position. Among the rest of the sectors, textile, apparel, and leather and food, beverages, and tobacco stand out for the low productivity growth and compete, essentially in the domestic market, with labor-intensive technologies. In contrast, paper, printing, and related activities stands out for competi-tiveness pattern based on an elevated productivity growth.

4.3 Precarization of Manufacturing Labor: Employment and Wages

During the external opening, the manufacturing sector endured an explosive growth of foreign trade (both exports and imports); it grew above average in the first half of the opening (1982–2000) and main-tained positive rates of growth in the second half (2001–2016). The sec-tor experienced relatively high sectoral investment rates, explained partially by the significant attraction of FDI. Furthermore, it enjoyed productivity increases that tripled the economy’s average in most part of the external opening (1982–2007). Despite this, manufacturing employ-ment and real wages performed poorly along the neoliberal period (Table 4).

The employment dynamics in the manufacturing sector mirrors inversely the patterns of the productivity growth at both the aggregate level and the subsectoral level. Manufacturing employment growth was sluggish along the whole neoliberal period, recording growth rates well


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below the total economy (Table 4). The early external opening in 1982–1993 did not turn into job creation; the average annual increase of manufacturing employment stagnated at 0.3%. Even in the zenith of the export boom in 1994–2000, when the manufacturing sector grew at 5% annually, and during the revitalization of manufacturing exports in 2008–2016, employment grew below par. In contrast, employment decreased steeply in 2001–2007, a period comprising two cyclical crises and the increased competition of the Asian and Central American econo-mies in the international market.

The faulty performance of the manufacturing sector in terms of employment has manifested in the loss of 7 percent points of employ-ment share during the neoliberal period (1982–2016). As stated, the main explanation of the deficient job creation in the manufacturing sec-tor was productivity growth, which accounted, on average, for 83% of the growth of the manufacturing sector. In the neoliberal context, pro-ductivity gains are mainly related to the increase in working hours and labor intensity, rather than to technological change. Consequently, man-ufacturing workers did not benefit from the export boom given the per-verse competitive scheme accompanying the external opening.

Figure 19 shows the relationship between the subsectoral growth of exports and the employment growth in the NAFTA period (1994–2016). As expected, there is a positive relationship between both variables, reflecting the other side of the coin of the negative relationship between export and productivity growth.17 Again, this behavior is consistent with a specialization of export industries in low-technology assembly lines of production, intensive in the use of labor. A particular characterization of the leading export subsectors can also be attained. Employment in fabri-cated metal products, machinery, and furniture stagnated during the NAFTA, confirming its greater relative dependence on productivity gains to compete in the international markets. An opposite case is represented by computer, and electronic and electrical products, and transportation equipment, which had higher increases in employment.

17 Similarly, the positive correlation of the growth of exports with productivity growth in the early stage of the external opening (1982–1993) is mirrored as a negative correlation with employment growth.


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The behavior of manufacturing real wages tracks the dynamics of employment, rather than the dynamics of productivity. At the aggregate level, manufacturing real wages had severer declines and milder recoveries than the real wage of the total economy, paralleling the performance of employment instead of productivity (Table 4). The average real wage of the manufacturing sector fell sharply in 1982–1993, nearly at the same rate as the economy’s average; it kept falling, though at a slower rate, in 1994–2000, while the total economy’s real wages stagnated. In the twenty-first century, the recovery of manufacturing real wages lagged behind the rest of the economy. In 2016, the sector’s wage was still 17% lower than its peak in 1976. Consequently, the 16% positive differential of manufacturing wages in relation to the whole economy during 1982–1993 had vanished by 2016.

At the subsectoral level, the growth of real wages shows a positive cor-relation with employment growth, while its correlation with productivity growth is negative (Fig. 20). Nonetheless, both correlations are weak, as evidenced in the distance of the subsectors to the regression lines, imply-ing a heterogenous behavior. Only two subsectors had higher increases in



Wood


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Fig. 19 Employment growth and growth of exports, Mexico, 1994–2016


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employment than in productivity: computer, and electronic and electri-cal products (9), and transportation equipment (10), both leading export sectors. However, real wages only grew in the former subsector. In contrast, the other leading export sector—fabricated metal products, machinery (8)—had significant productivity gains that were accompa-nied by positive rates of growth of real wages, while employment stag-nated. In Wood (3), paper, printing, and related activities (4), and chemical, plastic, and rubber products (5), the inferior real wage increases seem to be explained also by productivity gains. Conversely, productivity gains did not turn into increases in real wages in nonmetallic mineral products (6) and textile, apparel, and leather (2). Except for food, bever-ages, and tobacco (1), there is lack of complementarity between the growth of employment and the growth of productivity, a situation evi-denced by the horizontal distance between the sectors.

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Fig. 20 Real wage, employment, and productivity growth, Mexico, 1994–2016. Note: Productivity and employment growth are both plotted in the horizontal axis. Petroleum and coal products and primary metals, sectors that appropriate a considerable amount of ground rent are omitted. (1) Food, beverages, and tobacco; (2) textile, apparel, and leather; (3) wood; (4) paper, printing, and related activities; (5) chemical, plastic, and rubber products; (6) nonmetallic mineral products; (8) fabricated metal products, machinery, and furniture; (9) computer, and electronic and electrical products; (10) transportation equipment


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5 The Manufacturing Export-Led Mexican Economy

The external opening and the resultant structural transformation of the manufacturing sector laid the basis of the neoliberal regime of accumula-tion. Under this regime, the manufacturing sector is meant to lead the overall process of accumulation of capital by means of its expansion in foreign markets. Indeed, the transformations of the manufacturing sector have either permeated or affected greatly the rest of the economy: the ISI model gave way to the manufacturing-export-led (MEL) model in the neoliberal period. Nonetheless, the MEL regime of capital accumulation of the Mexican economy has proven to be weak, ineffective, and fragile, as we develop below. The limitations of the MEL model are associated to the extreme subordinate articulation of Mexico to the world market and, specifically, to the United States and to the global strategies of the trans-national companies.

The major cause of weakness of the Mexican MEL model relates to the productive specialization in low-technology labor-intensive industries within the neoliberal international division of labor. Under this new type of subordinate articulation to the world market, the foremost source of international competitiveness of the manufacturing sector has been the precarization of labor. Firstly, the key competitive mechanism of the manufacturing export subsectors has consisted on an initial steep reduc-tion of real wages and the maintenance of their low levels afterwards. Secondly, when productivity gains took place, they arose mainly from the prolongation of the working day and the intensification of work. Additionally, the precarization of labor has also entailed an overall decrease in the qualification of manufacturing jobs, flexible working hours and employment, and the deterioration of the general conditions of work. Consequently, the MEL model has heavily penalized workers, a clear feature of its discriminatory nature.

The previous state of affairs has bestowed the Mexico’s manufacturing sector, with only a few exceptions, with a deleterious competitive scheme based on static advantages. The low labor costs associated to the precariza-tion of labor has also been complemented with loose fiscal and environ-mental regulations, providing an attractive setting to lure the assembling


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lines of manufacturing transnational companies, with a significant weight of maquila. This static competitive pattern has been disseminated to the overall Mexican economy, as the deficient performance of average real wages evidences (Table 4). The economy’s average real wage soon mim-icked the negative path of the manufacturing wages, and steeply declined since its peak in 1981; by 1988, it had accumulated a 44% deterioration; in 2016 it was still 11% lower than in its peak. Thus, the precarization of labor in general and the maintenance of low levels of real wages in particu-lar have been a general feature of the Mexican economy.

The main consequence of the previous competitive scheme based on static advantages has been the inhibition of productive investment as a means of potential virtuous dynamic competitive advantages related to technological change and innovation. In the manufacturing sector, the substantial FDI inflows, associated to the subordination of the Mexican economy to the relocation strategies of the transnational companies, have fairly spurred GFCF, especially in the leading export subsectors. Nonetheless, this relatively dynamic process of productive investment has not resulted into significant productivity gains, a fact consequent with an investment biased to new structures rather than to machinery and equip-ment. In the rest of the economy, FDI inflows have not been enough to stimulate productive investment, which has kept rather low levels since the beginning of the 1980s, and productivity growth, which has been frail during the neoliberal period (Tables 4 and 5).

Another outcome of deleterious competitive scheme of the Mexican MEL regime of capital accumulation has been the consolidation of an extensive model of economic growth based on the limited expansion of employment in detriment to the growth of productivity. Unlike the man-ufacturing sector, where productivity growth accounted for over three quarters of the sector’s expansion, the growth of employment accounted for two thirds of the growth of the total Mexican economy in 1982–2016. This performance diverges from the preceding expansive long wave, when productivity growth accounted for more than half of economic growth in 1950–1980, and also from the United States in the same period, where productivity growth accounted for almost 60% of the economic growth. Along with the dynamics of productive investment and productivity, the existence of an ample industrial reserve army has engendered this struc-


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tural feature of the Mexican economy. This extensive model of growth, because of its insufficient dynamics, has therefore been incapable of absorbing the growth in the working population.

Another source of weakness of the MEL model has been the specific type of structural external dependency of the Mexican economy under its neoliberal subordinate articulation of the world market. As remarked above, the external opening has involved a growing importance of foreign demand—especially from the United States, the main recipient of Mexican exports—and of foreign production—through imports–. The stagnation of the domestic market has also been strengthened by the fall and sluggish-ness of real wages and other forms of workers’ income. This situation has increased the synchronization of the business cycle with the United States and has limited the scope of action of the anticyclical economic policies. In addition, the subordination to the transnational companies’ strategies has entailed a dependent articulation to their global value chains and the disarticulation of the limited domestic productive linkages developed dur-ing ISI; the increasing technological dependency on the imports of inter-mediate and fixed capital goods is particularly critical.

A second feature of the MEL regime of capital accumulation in Mexico has been its ineffectiveness in, at least, three aspects. Firstly, the external opening has had relatively limited positive effects on the manufacturing sector. While there was a remarkable growth of exports, imports grew even at a faster rate. Also, the foreign trade boost did not translate into eco-nomic growth or job creation neither into a significant expansion of real wages. In addition, productivity gains most likely can be attributed to an increase in extensive forms of labor exploitation. As a matter of fact, only a few manufacturing subsectors have successfully articulated with the world market. Along the neoliberal period, only transportation equip-ment and nonmetallic mineral products have experienced enduring trade surpluses. However, only the former can be considered a leading export sector. In addition, productivity and, especially, real wages have performed poorly in this sector. In conclusion, the neoliberal external opening had contradictory and heterogenous effects on the manufacturing sector.

Secondly, the ineffectiveness of the MEL regime of accumulation is evidenced in its failure to reverse the trade deficit as a structural feature of the manufacturing sector and the Mexican economy. Except for


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short- lived periods after the acute peso devaluations in the 1982–1983 and 1994–1995 cyclical crises, the deficit in the trade balance has dom-inated the neoliberal period. Neither the substantial trade surplus with the United States, nor the positive trade balances in maquila, oil and, to a lesser extent, tourist services have offset the non-maquila huge trade deficit. Thirdly, the MEL model has also proved unable to promote a meaningful economic development, Instead, a meager GDP growth and the deterioration of real wages, incomes, and living conditions of most of the population are clear indication of the excluding nature of the neoliberal period.

The last feature of the MEL regime of accumulation has been its mac-roeconomic fragility, consequence of the subordinate neoliberal finan-cialization of the Mexican economy (Mariña Flores and Cámara Izquierdo 2018). The structural trade deficit has not been compensated by the sub-stantial reception of remittances and the subsequent positive transfer bal-ance, and has been reinforced by the negative factorial services balance, result of neoliberal subordination to the world market. The previous arrangement generates a structural current account deficit that must be offset by a positive capital account. Consequently, the Mexican economy is structurally constrained to lure enough foreign capital inflows to settle the balance of payments. This constraint subordinates the macroeco-nomic policies, especially the monetary and exchange rate policies, and gives rise to Mexico’s subordinate financialization.

The attraction of foreign capital depends on providing a satisfactory profitability to the different types of investments, particularly to the financial ones. The generation, preservation and guarantee of such profit-able conditions is attained by a precise combination of economic poli-cies. In the first place, the monetary policy must fix a domestic nominal interest rate with a significant positive differential with foreign domestic nominal interest rates, especially of the United States; in addition, it must act aggressively in the face of inflationary pressures and must deliver a stable exchange rate in order to keep elevated domestic real interest rates expressed in a foreign currency. Consequently, the monetary policy acquires a structural restrictive nature, deepening the inhibition of pro-ductive investment and engendering an overvaluation of the exchange rate that tends to worsen the trade balance. Furthermore, it becomes


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procyclical during the economic contractions, given the need to counter-act the risk of capital flights, a feature shared with the fiscal policy (Correa Vázquez et al. 2012; Levy Orlik 2014).

The exchange rate and the fiscal policies must pursue the same objec-tives of the monetary policy. In particular, international reserves are accu-mulated beyond the requirements to confront the short-term speculative attacks against the Mexican peso. Instead, the reserves are needed to assure the convertibility of financial investments (public debt held by foreigners, foreign investment in capital markets, etc.) into foreign cur-rency, avoiding capital flights. This exchange rate policy comes with a very high price. Given the structural trade and current account deficit, the overaccumulation of international reserves reinforce the need to attract foreign capital and, therefore, the contractive monetary policy. Moreover, it implies a financial and opportunity cost that Rozo Bernal and Maldonado (2015) have estimated in an annual 1.83% of the GDP during the 2008–2014 period.

6 Conclusions

The manufacturing sector of the Mexican economy has undergone pro-found changes during the neoliberal period that have shaped the new regime of capital accumulation: the MEL model. The transformations of the manufacturing sector are related to two concomitant processes—the precarization of labor and the external opening—that have engendered the neoliberal articulation of Mexico to the world market. This articula-tion is characterized for being subordinated to the renewed general strate-gies of the transnational corporations and to the United States. The result was a productive specialization in low-technology industrial segments intensive in the employment of low-skill workers whose competitiveness relies heavily on low wages.

The structural transformation of the manufacturing sector manifested essentially in a rocketing expansion of exports, especially in the subsec-tors with stronger links with the international markets: fabricated metal products, machinery, and furniture; computer, and electronic and electri-cal products; and transportation equipment. Nevertheless, the external


146

opening came also with a subordination to the global value chains of the transnational corporations and an external dependency on imports of intermediate and capital goods, which revealed itself in an even greater increase in imports. Consequently, only transportation equipment man-aged to run a persistent trade surplus among the leading export sectors; from the rest of the subsectors, this was only the case of nonmetallic mineral products. The overall manufacturing sector kept recording con-siderable trade deficits, despite the surplus of the maquila segment, and could not prevent the aggregate structural trade deficit or the Mexican economy.

The external opening of the manufacturing sector did also not materi-alize in general improvement of its economic performance. The attrac-tion of large amounts of FDI, reflection of the relocation strategies of the transnational companies, turned up into a fairly dynamic process of capi-tal accumulation. Nonetheless, the sectoral and subsectoral productivity gains do not seem to be related with productive investment, but with an increase of the labor exploitation through longer working hours and greater intensity of work. This result is coherent with the subordinate articulation of the Mexican economy and the productive specialization of the manufacturing sector, which shows up in an investment bias toward new low-technology based structures rather than toward labor-saving machinery and equipment. Accordingly, the manufacturing sector only gained GDP share during the first two stages of the external opening (1982–2000), but lost weight subsequently as a consequence of the increased competition of Asian and Central American economies, evi-dencing the limits of the neoliberal restructuring in Mexico. The external opening had injurious effects on manufacturing workers during the neo-liberal period both in terms of employment, which stagnated, and in terms of remunerations, which performed below average, evidencing its discriminatory nature.

The structural transformation of the manufacturing sector laid the foundation of the neoliberal regime of capital accumulation: the MEL model, which has failed to promote growth and, let alone, development for the Mexican economy. On the contrary, the MEL model has proven to be weak, ineffective, and fragile. Its weakness relates to the deleterious competitive scheme based on static advantages related to the precariza-


147

tion of labor. Its ineffectiveness relates to its incapability to reverse the structural trade deficit of the manufacturing sector and the total econ-omy. Finally, its fragility relates to the subordination of the economic policies to the necessity to attract enough foreign investments to offset the negative current account deficit, which gives rise to the subordinate financialization. The economic development and the promotion of eco-nomic welfare for a majority of the Mexican population requires to tran-scend the MEL model and its substitution for an antineoliberal, to begin with, and non-capitalist, as a necessary corollary, social, political, and economic agenda (Mariña Flores and Cámara Izquierdo 2015, 34–36).

References

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The Evolution and Challenges of Latin American Industrial Development

in the Twenty-First Century: An Analysis from Argentina, Brazil, and Mexico

Juan Eduardo Santarcángelo and Juan Manuel Padín

1 Introduction

At the beginning of the twenty-first century, Latin America has experienced its most notable period of economic expansion since the 1970s, when the predominant model of development was the import substitution industri-alization (ISI), also known as state-led industrialization. In the last quarter of the twentieth century, the countries of the region followed a strategy of integration into the world economy based on their comparative advan-tages, which rested on the Washington Consensus guidelines and was



J. M. Padín Universidad Nacional de Quilmes (UNQ), Bernal, Argentina


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actively supported by the International Monetary Fund (IMF) and the World Bank (WB). This orientation led to stagnation (Mexico) or to a strong economic and social crisis at the beginning of the twenty-first cen-tury in Argentina and Brazil.

As a result of that crisis, Argentina and Brazil experienced radical polit-ical changes of government (Kirchner-Fernández de Kirchner and Lula Da Silva-Dilma Rouseff) that tried not only to repair the damages caused by neoliberal policies but also to promote industrial growth. In Mexico, the situation was different. During 2001–2002 the country had a cyclical crisis that was left behind the next year (Mariña Flores and Cámara Izquierdo 2019). Since 2003, the three countries follow a similar trajec-tory: strong growth until the global financial crisis in 2008–2009, and then the set of countries present two trends: on the one hand Mexico shows stable growth rates until 2017 (annual average of 2.2%), while Argentina and Brazil had a rapid recovery until 2012, and then there was a slight tendency toward stagnation and even negative growth rates.

During the beginning of the twentieth century, one of the most impor-tant developments recorded in many Latin American countries was the manufacturing sector outstanding performance. For several years, it grew at rates above the average of the economy (Azpiazu and Schorr 2010a; Porta and Fernández Bugna 2008; Porta et al. 2014; Santarcángelo 2013), encouraged by the application of industrial polices (IPs) combined with traditional instruments, aimed at promoting innovation and technologi-cal modernization initiatives (Ninomiya 2015; Palacios 2013; Santarcángelo et al. 2017).

The objective of this chapter is to analyze the industrial performance of Argentina, Brazil, and Mexico, the three most industrialized countries in the region, which together account on average for at least 75% of the value added generated by the manufacturing sector in Latin America. To do this, we will examine not only the global changes that have occurred in capitalism and influenced the dynamics of economic growth that these countries have had since the beginning of the twenty-first century, but also the impact of the IPs applied and the role of the state, as well as the main challenges the countries will face in the years to come.

J. E. Santarcángelo and J. M. Padín

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With these objectives, the chapter is structured in three sections after this brief introduction. The following section provides a summary of the more fundamental economic transformations that have reshaped the global econ-omy since the 1970s and its implications in Latin America. The third sec-tion examines the economic and industrial performance of Argentina, Brazil, and Mexico in the last two decades, with particular emphasis on the economic orientation of the country, the growth path, the manufacturing production, the evolution of employment and external trade, the main char-acteristics of the IPs applied, the role performed by the state and the level of economic concentration. Finally, we present the main conclusions and we underline the main challenges these countries will face in the years to come.

2 The Global Economic Transformations and Its Implications in Latin America

The demise of the Bretton Woods system in the 1970s was an auspice of the transformations that would occur in the world economy during these years that led to a more integrated and interdependent global economy, and restructured the economic relations (and balances) between developed and developing countries. The “golden age” of capi-talism (1945–1973) was left behind, as well as the high rates of growth, low inflation, and full employment in both developed countries and much of the western periphery. The coming years would make it clear that a new world was coming and Latin America would be a paradig-matic example in that respect. Despite the “black legend” regarding the period of state- led industrialization, and the fact that industrial policy has not been concerted and coherent as it has been in East Asia (Rodrik 2004, 16), the region did not achieve an equivalent performance since the abandonment of those policies.1 In this context, the predominant

1 As opposed, the economic reform that was implemented in the 1970s and 1980s in order to pro-mote growth did not bring the expected results. During the ISI period, the economy grew at above- average rates and expanded its share in world production, which rose to 9.5% by 1980. Since then, Latin American economies share in global GDP fell back to 8% and it has continued to slip gradu-ally ever since (Ocampo 2013).

The Evolution and Challenges of Latin American Industrial…

152

form of globalization2 since the 1970s (the “neoliberal globalization”) imposed a new policy framework that completely changed the way the world economy used to work. A closer look at three fundamental inter-related economic dimensions reveals the magnitude of that change: (1) the increase in international trade; (2) the reconfiguration of the pro-duction systems; and (3) the acceleration of the financial sector growth.

One of the most impressive transformations is depicted by the trade openness index (the ratio of trade to GDP), as a result of trade liberalization. The WB data clearly reflects this pattern (Fig. 1): while in 1960 trade had accounted for 24% of world GDP, in 2016 this figure rose to 56%. Even it was a worldwide phenomenon, it should be noted that the process was not homogeneous. For example, Latin America followed the same trend, but below the world average (exceeding 20% in 1960 and above 40% in 2016). This was also the case of Argentina and Brazil. On the other hand, Mexico experienced a sharp rise in the 1990s, which partly reflects the process of economic and trade integration as a consequence of the signing of NAFTA.

2 A critical analysis of the term “globalization” can be found in Chilcote (2002).

0

10

20

30

40

50

60

70

80

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

%

Argentina

Brazil

Mexico

World

Latin America & Caribbean

Fig. 1 Trade share to GDP, 1960–2015 (percentages). Source: Own elaboration based on World Bank data


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In institutional terms, the region also had substantial differences. The trade liberalization agenda was only one feature of a broader process of economic opening that took place under the auspices of the so-called Washington Consensus, the WB and the IMF, which facilitated access to credits as long as certain economic policies were adopted (privatizations, fiscal adjustment, financial opening, labor reforms, etc.).3 This trade pol-icy orientation was then intensified, subsequently, at the regional level, through the creation of MERCOSUR (in the case of Brazil and Argentina), and the integration into NAFTA (with respect to Mexico). At the multilateral level, the launching of the World Trade Organization (WTO) in 1995 provided an additional boost for free trade policies.

It should be stressed that the remarkable growth of international trade in the postwar period was largely possible -in addition to the signing of free trade agreements and the facilitation of foreign direct investment (FDI)—because of reductions in transport and communication costs and a revolutionary technical change. However, trade opening cannot be reduced to a “technical phenomenon”. Rather, it took place within the framework of two decisive changes in the behavior of the large industrial corporations, which aimed to increase their profits and improve their global competitiveness.

The first change was the internationalization of production systems, where large corporations gradually ceased to operate as subsidiaries designed to supply the demand of local markets, and began to manufac-ture different components of their products in distant regions (with lower production costs), assemble them in the most convenient locations, to then export the final goods to the largest (and not that much) consumer markets of the world. The second change was that these corporations have modified their investment strategy, by articulating a wide network of contractors and subcontractors at regional or global level, centrally controlled from the headquarters, which were in charge, additionally, of examining both productive investment opportunities and financial alter-natives (Santarcángelo 2017). The result was the proliferation of global

3 The influence of multilateral development institutions in Latin America has varied significantly over time and across countries, for different social, political, and economic reasons. A detailed examination of the process can be found in Perry and García (2017).


154

value chains (GVCs) which can be understood as “the full range of activi-ties that firms and workers perform to bring a product from its conception to end use and beyond”, including activities such as design, production, marketing, distribution, and support to the final consumer. These activi-ties can be contained within a single firm or divided among different firms on a local, regional, or global scale (Gereffi and Fernández- Stark 2011, 4).4

The free flow of goods across national borders was a basic element for the successful development of this new global economic geography, and vital aspect for the emergence of global vale chains. The aforementioned changes would also have many far-reaching consequences. For example, as a result of the relocation and fragmentation of many manufacturing activities abroad (specially, the labor-intensive industries), a new compo-sition and distribution of international trade flourished, which also boosted the growth of specific regions and countries. In this regard, the inter-industry trade pattern, where industrial products from developed countries were exchanged for raw materials produced by developing countries, was replaced by intra-industry trade (manufacturing goods). Many emerging nations were a relevant part of that change, which paved the way to a new division of labor, as can be observed in their export baskets: between 1980 and 1999 the manufacturing products exported by developing countries rose from approximately 30% to 80%. According to Bina and Yaghmaian (1991, 111), the postwar division of labor pre-supposes three interrelated process: the concentration and centralization of capital both in manufacturing (industrial capital) and banking (finan-cial capital); the formation of finance capital and further development of credit system for expanded reproduction; and the consequent interna-tionalization of all circuits of capital and globalization of production through the medium of transnational corporations.

In that respect, the end of the state-led industrialization also opened the way to an increasing differentiation in the growth trajectories of Latin American nations. The Southern Cone and some of the Andean

4 The chains are “global” since the links in the production process pass through different countries. The term “value” is used to express the fact that each firm adds a certain degree of value to the final product.


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Pact countries experienced a process of economic reprimarization, while other countries (especially Mexico) prioritized a specialization in some unskilled labor-intensive industries, which reflects objective differential conditions of insertion in the new international division of labor, as well as different configurations of the dominant classes and their relationship with subordinate sectors (Arceo and Basualdo 2006, 17). It is needless to say that those policies did not encourage any positive structural change. As a way of example, the region has maintained a 6% share in world exports of goods since 2000s. The relative stagnation of exports, indeed, shows the difficulty of Latin American nations to modify their primary and non- diversified export structure, where more than a half of the value of their total shipments is related to agricultural products and manufac-tures based on natural resources. Additionally, the region still has a weak participation in GVCs, and presents a low intra-regional productive integration. At the same time, several indicators suggest that Latin America is lagging behind in its insertion in world trade in services (CEPAL 2016).

A very important consequence of these transformations is that the internationalization of the production systems gradually modified the balance between the developed countries and the peripheral nations: the latter share of global gross domestic product (GDP) rose from approxi-mately 30% in the 1980s to more than 40% in 2015 (Palley 2018). However, the result is even more impressive according to GDP Power Purchasing Parity5 data: emerging and developing countries outper-formed the economies of developed countries in the mid-2000s (see Fig. 2). Nevertheless, it is worth noting that there was a process of strong differentiation between the emerging countries themselves. Some of them have become great economic powers (e.g., China), while many others are now middle-income status countries; and the rest are, even now, least developed countries, condemned by extreme poverty and vulnerability.

5 Frequently, the PPP method is used when making international comparisons, in order to measure how much a currency can buy—generally, taking into account a common basket of goods and services—relative to other currencies. One of the positive aspects of this method (which, like the rest, is not perfect) is that it is considers the relative cost of living and the inflation rates of the countries; rather than using only exchange rates, which may distort the real differences in income considering the fluctuations that may occur between currencies.


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This revolution in the world economy can also be expressed, from a different perspective, examining the ranking of countries according to their GDP between 1970 and 2017 (see Table 1). As we can observe, the United States leadership was not yet reversed but its margin over the sec-ond economy has been shrinking considerably in recent years. In fact, the US economy began to lose its GDP world share as well as the rest of the traditional post-word leading countries (Germany, France, United Kingdom, Italy, Japan, or Canada). But none of them had a fall as intense as Japan. The end of the Japanese “economic miracle” (1945–1991) started in the early 1990s and significantly damaged its economy. There are several explanations and among them we can point out: the low increase in productivity and the nature of innovation; the weakness of external demand for Japanese products and increasing competition from others Asian countries; the manufacturing outsourcing due to the loss of competitiveness of the manufacturing industries; the population aging and the slowdown in the labor force growth; the property bubbly burst; and/or a market saturation process.

The flip side of the coin was the growth of the Chinese economy, which has increased its share in such a manner that has leapfrogged Japan as the world’s second-largest economy in 2010. The results that China has achieved are explained by a singular mixed economic system, which man-aged to combine an economic reform and a controlled opening process

30

35

40

45

50

55

60

65

70

1980 1985 1990 1995 2000 2005 2010 2015

Share

Advanced economies

Emerging market and developing economies

Fig. 2 GDP based on PPP, share of world (1980–2015). Source: Own elaboration based on IMF data


157

Tab

le 1

G

DP

ran

kin

g, c

urr

ent

USD

, 197

0, 1

980,

199

0, 2

000,

201

7

1970

1980

1990

2000

2010

2017

Ran

kin

gEc

on

om

ySh

are

Eco

no

my

Shar

eEc

on

om

ySh

are

Eco

no

my

Shar

eEc

on

om

ySh

are

Eco

no

my

Shar

e1

Un

ited

Sta

tes

36.4

%U

nit

ed

Stat

es25

.6%

Un

ited

Sta

tes

26.5

%U

nit

ed

Stat

es30

.6%

Un

ited

St

ates

22.7

%U

nit

ed

Stat

es24

.0%

2G

erm

any

7.3%

Jap

an9.

9%Ja

pan

13.9

%Ja

pan

14.6

%C

hin

a9.

2%C

hin

a15

.2%

3Ja

pan

7.2%

Ger

man

y8.

5%G

erm

any

7.8%

Ger

man

y5.

8%Ja

pan

8.6%

Jap

an6.

0%4

Fran

ce5.

0%Fr

ance

6.3%

Fran

ce5.

6%U

nit

ed

Kin

gd

om

4.9%

Ger

man

y5.

2%G

erm

any

4.6%

5U

nit

ed

Kin

gd

om

4.4%

Un

ited

K

ing

do

m5.

1%It

aly

5.2%

Fran

ce4.

1%Fr

ance

4.0%

Un

ited

K

ing

do

m3.

3%

6It

aly

3.8%

Ital

y4.

3%U

nit

ed

Kin

gd

om

4.8%

Ch

ina

3.6%

Un

ited

K

ing

do

m3.

7%In

dia

3.2%

7C

hin

a3.

1%C

anad

a2.

5%C

anad

a2.

6%It

aly

3.4%

Bra

zil

3.3%

Fran

ce3.

2%8

Can

ada

3.0%

Bra

zil

2.1%

Spai

n2.

4%C

anad

a2.

2%It

aly

3.2%

Bra

zil

2.5%

9In

dia

2.1%

Spai

n2.

1%R

uss

ian

Fe

der

atio

n2.

3%M

exic

o2.

1%In

dia

2.5%

Ital

y2.

4%

10B

razi

l1.

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.0%

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est

of

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158

capable of attracting foreign investments along with many state initiatives aimed at improving the country’s infrastructure; encourage national com-panies; reduce the technological gap; or train human resources abroad (Grivoyannis 2012; Canon and Jenkins 2003). The numbers speak for themselves. Between 1978 and 2011, the average annual growth rate fluc-tuated around 10%, with a strong boost from foreign trade and became the world’s fastest-growing major economy (Lippit 1997). The Brazilian case is also interesting. The country has remained among the biggest econ-omies for several decades, despite the changes in its economic policies (Medeiros et al. 2019; Kiely 1998, 2005). Neither Mexico nor Argentina (or any other Latin American country) could achieve such a task.6

During these years, China also emerged as a new global power in the manufacturing sector: a quarter of the world manufacturing value added in 2016 was originated in this Asian country (see Fig. 3). It is worth

6 Argentina was never among the ten most important countries in the world according to its GDP.

0%

5%

10%

15%

20%

25%

30%

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

China, People's Republic ofGermany

ItalyJapan

United StatesIndia

Republic of Korea

Fig. 3 Shares of global manufacturing value added, by leading countries (1970–2015). Source: Own elaboration based on UN National Accounts Main Aggregates Database


159

noting that its current predominance relies on its impressive manufactur-ing performance, especially in the last ten years (increasing its share 17 percentage points). Despite these changes, the level of concentration in the world industry remains high. In fact, a handful of countries dominate this strategic productive segment. As a way of example, two-thirds of the global manufacturing value added is produced by seven countries (China, USA, Germany, Japan, Italy, India, and South Korea). In contrast, the aggregate share of Brazil, Mexico, and Argentina is slightly above 3% (1.6%, 1.5%, and 0.6% in 2016, respectively).

The intense growth of China put pressure on industrial structures around the world, and especially on the developed countries manufactur-ing sector. In this sense, it is important to note that beyond the particular vision of Donald Trump regarding the functioning of the global econ-omy, the US President’s trade war against China express, at least in part, this manufacturing rebalancing. For example, China’s growing influence is also notorious in Latin America: in recent years the Asian country has seriously challenged (and in some countries, even displaced) the United States as supplier -along with the European Union- of industrial products in the region (see Table 2).

Another radical transformation in the global economy was the progres-sive elimination of financial regulations that also started during the 1970s, first in the US economy, and then it spread into the world, with the active support of multilateral organizations such as the IMF and the WB, which played an important role in presenting reforms to the financial sector as the only way to eliminate imperfections in local markets, and the best way for developing countries to obtain the economic resources to foster their economic development. As a result of this process, we can observe in Fig. 4 that between 1980 and 2007, the world’s financial assets, including equi-ties, public and private debt, and bank deposits, almost quadrupled in size relative to GDP (McKinsey 2009). As we can see in the figure, the finan-cial depth, measured as the ratio between world financial assets and nomi-nal world GDP increased throughout the period under analysis reaching in 2007 a peak value of 355, which implies an increase of 196%.

It is important to note that in 2007, the world economy was strongly shaken by the international financial crisis. The bursting of the housing bubble in the United States quickly spread to most of the developed


160

Tab

le 2

Im

po

rt o

rig

ins.

Sel

ecte

d L

atin

Am

eric

an c

ou

ntr

ies.

199

6, 2

006,

201

6. P

erce

nta

ges

an

d p

erce

nta

ge

po

ints

1996

2006

2016

1996

–201

6. p

.p.

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gin

/ Im

po

rter

US

Ch

ina

Oth

ers

US

Ch

ina

Oth

ers

US

Ch

ina

Oth

ers

US

Ch

ina

Arg

enti

na

18.8

2.7

78.5

13.3

8.5

78.2

14.3

17.9

67.8

−4.

515

.2B

razi

l22

.42.

175

.57.

820

.172

.120

.715

.164

.2−

1.7

13.0

Mex

ico

74.5

0.9

24.6

54.9

9.5

35.6

53.6

15.4

31.0

−20

.914

.5C

olo

mb

ia35

.80.

963

.324

.97.

867

.328

.016

.355

.7−

7.8

15.4

Ch

ile23

.82.

873

.417

.010

.872

.221

.822

.156

.1−

2.0

19.3

Ecu

ado

r31

.00.

968

.122

.86.

370

.924

.818

.157

.1−

6.2

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Para

gu

ay20

.31.

778

.016

.521

.961

.617

.822

.759

.5−

2.5

21.0

Uru

gu

ay11

.61.

387

.17.

86.

286

.010

.315

.074

.7−

1.3

13.7

Peru

24.6

2.4

73.0

17.8

9.5

72.7

21.5

22.1

56.4

−3.

119

.7V

enez

uel

a41

.50.

458

.127

.65.

367

.134

.016

.349

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7.5

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lab

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n b

ased

on

Ob

serv

ato

ry o

f Ec

on

om

ic C

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ple

xity


161

countries of the world, later arriving in many developing countries. Looking at the 30 most advanced capitalist economies members of the Organization of Economic Cooperation and Development (OECD), the drop in output and income due to the crisis was 6.5% in 2009 (Roberts 2009, 1). The ultimate outcome was the collapse of significant financial institutions, and more importantly, a major adjustment of financial cor-porations and the stock market (Santarcángelo et al. 2016).

The financial crisis hit foreign markets very quickly. American and European banks recoiled their international loans to deal with liquidity issues and concerns about their business stability. This affected those economies that had borrowed heavily from American and European financial institutions, creating credit shortages and causing foreign trade to collapse in countries whose operations are tied to letters of credit and other mechanisms of international financing. The crisis turned global because it had a global origin. Once liquidity issues emerge in one market, in a globalized world, this may turn very quickly into a solvency disaster or a balance of payments shortcoming, which can ignite a global crisis of confidence (Santarcángelo et al. 2016, 13).

12

43

94

195

1022

32

55

355

100

150

200

250

300

350

400

0

50

100

150

200

250

1980 1990 2000 2007

World Financial Assets Nominal World GDP Financial depth

Fig. 4 World financial assets and global GDP USD trillions (1980–2007). Source: Own elaboration based on McKinsey 2009


162

The financial crisis also had very noticeable effects in capital flows. In fact, since the global crisis began, gross cross-border capital flows have fallen by 65% in absolute term and by four times relative to world GDP (from USD 12.4 trillion in 2007 to USD 4.3 trillion in 2016). In that context, the debate and the possibility arose of who would carry the cost of the crisis on their shoulders; and, as was to be expected, the states decided to use their resources to save the banks and financial institutions from the bankruptcy and leave the workers with all the cost to their fate.7

As a consequence, bailouts were used to maintain the general saving of the wealth of the rich. This has provoked the emergence of a “populist” reac-tion against “capitalism”, whether leftist as in Greece, Spain, or Latin America; or rightist as with Trump, Brexit, and the Liga in Italy (Roberts 2016). The difficulty is that the underlying problem of rising debt and an uncontrolled financial sector has not been resolved; and the financial crisis could well return (Tooze 2017; Roberts 2009). In fact, and despite the deep crisis experienced ten years ago, financial globalization is very much alive as is well evidenced by the fact that the global stock of foreign investment8 rela-tive to GDP has changed little since 2007 to the present9 (McKinsey 2017).

Finally, it should be noted that the world economic order is character-ized not just by the financial and trade openness, and the strong interde-pendence given the dominant configuration of productive systems, but also for the intense technological revolution in progress led by digitaliza-tion and connectivity, where different technologies (among others, Internet of Things, Big Data, Cloud Computing, artificial intelligence, or 3d printing) reinforce the importance of the manufacturing industry as a producer of smart and customized goods (Basco et al. 2018, 14). This combination of elements, which specialists called Industry 4.0, represents a novelty from a historical point of view, and has enormous consequences for Latin America (and the world as a whole).

7 According to Mckinsey (2018), it is consistent with history that a debt crisis that began in the private sector shifted to governments in the aftermath. That was exactly what happened in the last global crisis. For example, public debt in advanced countries increased from an actual debt-to-GDP ratio of 69% in 2007 to 105% in 2017.8 It includes FDI, equities, debt securities, lending, and other investment.9 From 185% (2007) to 183% (2016).


163

This new era is characterized by the coexistence of a great variety of technologies that erase the boundaries between the physical, the digital and the biological, generating a fusion between these three planes and a paradigm shift (Basco et al. 2018, 16). Technologies can drive global companies toward relocation (reshoring) and the decentralization of pro-duction (distributed manufacturing), bringing manufacturing closer to consumer centers and the digital transformation challenges all social actors in different levels. As a result of all these transformations, the con-ditions to boost the manufacturing sector in the region are even more challenging than in the past; today markets are much more integrated, international trade increasingly takes place in governed value chains, and the rise of China has cut off many of the remaining avenues for techno-logical upgrading (Altenburg and Lütkenhorst 2015, 69).

In the next section we will analyze this in detail, through the examina-tion of the economic and industrial performance of Argentina, Brazil, and Mexico in the twenty-first century.

3 The Economic and Industrial Performance of Argentina, Brazil, and Mexico in the Twenty-First Century

During the first years of the new century, Latin America has experienced its most remarkable period of economic expansion since the 1970s. The high prices of commodities, the reversal in the terms of trade, and as we saw the dynamism of international markets (and China’s strong economic growth, in particular) were driving forces of this performance, as well as more active economic policies aimed at increasing domestic demand and promoting the development of national markets (Abeles et al. 2013). In this context, the manufacturing output expanded at its fastest rate, boosted by the implementation of industrial policies that the region was once again implementing after years of questioning and exclusion10 from the mainstream economic thinking (Devlin and Moguillansky 2013).

10 In that respect, Peres (2013, 38) considers that the loss of legitimacy of industrial policy did not occur homogeneously in all regions. In fact, it was much pronounced in Latin America.


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The global financial crisis in 2008 and its impact on economic growth since 2009 modified that context, and led to a more complex (external and also domestic) situation in Latin American countries (Santarcángelo et al. 2016). However, there were substantial differences -both in tempo-ral terms and with respect to the policies applied- in each of the countries under analysis that should be clarified. For this reason, it is important to briefly consider the specific features of the economic and industrial per-formance of Argentina, Brazil, and Mexico, focusing on the main eco-nomic and manufacturing trends and the transformations that took place during this historical period.

As we saw, the main countries of the region experienced a strong eco-nomic growth and a significant increase in the manufacturing sector activ-ity during the 2000s. But this trajectory occurred under different economic models that, while sharing some common features -especially in the cases of Argentina and Brazil-, also keep substantial differences. With the aim of presenting an in-depth look at the central elements of each of the coun-tries analyzed, we will focus our attention on four key aspects: the general orientation of the economic policy (heterodox or neoliberal); the eco-nomic results achieved in the countries under analysis; the industrial pol-icy and the state’s role; and the pattern of specialization.

3.1 General Orientation of the Economy

The end of the neoliberal economic orientation is one of the main com-mon features shared by Brazil and Argentina in the early 2000s, even when this was a bit more traumatic in Argentina considering that before the change of orientation the country went through the worst economic and social crisis in its history. On the other hand, the situation was completely different in Mexico: neoliberal policies remained in effect throughout the period under analysis.

In the case of Argentina, for example, the negative economic perfor-mance between 1999 and 2002 eroded the convertibility regime, which had been designed by the Menem administration in 1991 and continued by the De la Rúa administration. The implementation of pro-market and structural adjustment policies, framed within the context of the


165

Washington Consensus, and actively promoted by international institu-tions such as the IMF and the WB, in an international context of strong trade and financial liberalization had finally reached its economic, social, and political limits. The end of this policy orientation was marked by the strong nominal devaluation in 2002, which gave way to a new economic period: the postconvertibility regime. This economic transformation was politically consolidated by a Peronist center-left government, the Kirchner administration (2003–2015), which was guided by an heterodox under-standing of economic affairs, aimed at encouraging production -more specifically, the industrial sector of the economy- at the expense of the financial sector (Wylde 2012, 90).

It is important to keep in mind that the postconvertibility regime, effec-tive as of 2002, is usually divided into three sub-stages, as it is explained in detail in this volume by Santarcángelo (2019): the first of them, from 2002–2007, was characterized by the end of the crisis, an incipient reindus-trialization, and a labor market’s improvement and social indicators; the second sub-stage covers the period 2008–2011, and it includes the domes-tic aftermath of the international crisis and the subsequent recovery of the local economy; and finally, the period 2012–2018, which can be split into two sub-stages: the first until 2015, where the economy and especially the manufacturing sector stagnated, with the resurgence of external constraints and external imbalances (Kulfas 2016); and the second one that begins in 2016 and corresponds to the Macri administration in which the doctrine of the supremacy of the market has been reinstated. In this last sub-stage, the market-friendly reforms led to another economic crisis, an increase in levels of income inequality and inflation, which provoked serious damages to the productive sector and the labor market as well as an unsustainable external indebtedness policy. In addition, this sub-stage also included the request for assistance to the IMF in 2018, which further worsened the already critical economic and social situation.

In the case of Brazil, the Presidency of Lula Da Silva (2003–2010) gave birth to a new political era in the recent history of the country which put an end to Cardoso’s neoliberal policies (1995–2002). Despite the fact that the first economic measures were quite orthodox, Lula administra-tion’s approach began to incorporate, gradually, heterodox initiatives, try-ing to promote a sustainable and stable growth, which generated an


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unprecedented social protection network in the largest economy of Latin America. As in the case of Argentina, it is possible to distinguish at least three sub-stages. The first sub-stage covers the two mandates of the Lula administration, which were successful in economic and social terms; as a result, millions of citizens emerged from poverty. However, during the last four years different tensions began to flourish first, as a result of the international crisis, that affected the Brazilian economy especially during 2009; and second, also as a consequence of domestic particularities.

The negative consequences of this trajectory, in any case, would be evident in the second sub-stage, during the Presidency of Lula’s successor, Dilma Rouseff (2011–2016). The appreciation of the real, the rate of inflation’ growth, the economic slowdown of manufacturing sectors and the new international context would hinder the economic management of her administration. Dilma Rouseff considered that in a new national and international context the application of other (orthodox) policies would provide stability to the Brazilian economy. It was evident that, as in Argentina, the initial and successful years gave way to a context of greater complexity; and as a result, the economy would no longer grow as before, and greater tensions would appear.

Finally, the third sub-stage is marked by a context of strong political, economic and social tensions that led to Rouseff’s impeachment in 2016 and the designation of her former Vice-President, Michel Temer, as President of Brazil. The Sao Pablo politician instituted (one again) radical neoliberal policies -leading the economy into recession- and imposed a structural adjustment approach, ending with the developmental approach that the Brazilian state implemented for so many years since Lula’s vic-tory. In addition, the economic policy once again negatively affected the living conditions of millions of citizens in need. According to the WB, 28.6 million Brazilians left poverty between 2004 and 2014; buy under Temer’s administration the entity also estimated that between 3 and 4 million people fell below the poverty line.

In the case of Mexico, the neoliberal economic orientation did not substantially change during the period of analysis, despite the changes of political authorities at the national level. The predominance of Neoliberalism was consolidated in the 1980s, where the state-led indus-trialization strategy was abandoned. That change reshaped the state’s role toward a market-friendly model. As Mariña Flores and Cámara Izquierdo


167

(2019) explain in this volume, that transformation was just a part of a general process where the economic policy was substantially modified, and initiatives of economic liberalization, privatization, deregulation, and opening of the economy were actively promoted, as well as another type of international insertion of Mexico, where joining NAFTA in 1994 was, evidently, a breaking point.11

During the 2000s, none of the Mexico’s Administrations questioned the economic general orientation and, despite the economy grew at mod-erate rates throughout the period, it was not possible to produce substan-tial productive changes or improve the social situation of the Mexican people. However, it should be noted that the domain of neoliberal poli-cies recently began to be strongly questioned. In this sense, the election of Andres Manuel Lopez Obrador as President of Mexico in 2018 also expresses the discontent of the population with the path taken by the Mexican economy and politics in recent decades.

3.2 Economic Performance

Among the three countries under analysis, Argentina was the one that had a better economic performance in the (first years) of the period under analysis. As can be seen in Figs. 5 and 6, the first sub-stage of Kirchner’s administration (2003–2007) is characterized by a dramatic economic recovery (8.8%, average annual growth) and the outstanding growth of the manufacturing sector (10.4%), which also increased its share in rela-tion to GDP, and had a trade surplus until 2007.12

The real income growth, boosted by the creation of employment, the increase of wages, and greater transfers of public resources, besides improv-ing social indicators, strengthened the domestic demand. The combination

11 According to Alvarado and Padilla (2017, 404), the transition from the import substitution model to the export-oriented growth model resulted in a structural change in three dimensions: (1) and increasing share of foreign trade to GDP; (2) a significant transformation of the export basket, from one dominated by primary products to one concentrated in medium and high tech-nology manufactures, and (3) a reconfiguration of value added within the large sectors (manufac-turing and services).12 The industrial products export share were just one-third of total exports during the period under analysis. As we will see, this percentage is lower than the manufacturing export share of Brazil, and particularly, Mexico.


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Fig. 6 Manufacturing, value added (annual average growth). 1994–2002, 2003–2007, 2008–2011, 2012–2015, 2016–2017. Argentina, Brazil, and Mexico (%). Source: Own elaboration using World Bank statistics

Fig. 5 GDP (annual average growth). 1994–2002, 2003–2007, 2008–2011, 2012–2015, 2016–2017. Argentina, Brazil, and Mexico (%). Source: Own elabora-tion using World Bank statistics


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of these policies with a depreciated real exchange rate, export taxes on agri-cultural products and subsidies on energy created many effective exchange rates, being the manufacturing sector the most favored (Lavarello and Sarabia 2015). In the second sub-stage (2007–mid-2011) there would be several changes. The economic performance was affected, in addition to a drought in 2008/2009, because of the negative effects of the international crisis, as well as other internal economic and social tensions. The apprecia-tion of the real exchange rate, the growth of inflation, and the stagnation of international reserves would also begin to modify the macroeconomic con-text of the Argentine economy during these years, and would condition its trajectory in the subsequent periods. As a result of these changes, the annual average growth was reduced to 3%, the growth of manufacturing value added also decreased in comparison with the previous period (3.8%), and the industrial trade deficit began to press on external accounts. The eco-nomic downturn in 2009 (for the first time since 2003) prompted the implementation of expansive measures that were helpful for economic (and manufacturing) recovery in 2010/2011.

The economic trajectory of Brazil was quite similar. During the first four years of Lula’s administration, the GDP grew annually at 4% (mainly supported by the domestic market, investment, and exports). The manu-facturing value added also increased at an annual average of 4.3%, and the industry trade balance was positive. In this sub-stage, one of the pub-lic policies priorities was to promote not just a sustained growth process, but also to develop the productive sector. In the second sub-period (2008–2012), it was still possible to maintain the growth rate (4%, annual average), but there was a notable increase in the manufacturing trade deficit and a fall in the manufacturing value added rate of growth (1.6%). The change in the international context (along with other domes-tic economic and social tensions) also began to affect Brazil. And this would be evident, especially at the end of the President Lula’s term. In the case of Mexico, the economy grew at a lower rate: between the mid-90s and 2017 it oscillated around 2.5%, with a fall after the international crisis in the period 2008–2011 (1.2%).13 This trend was also registered in

13 Mexico’s GDP contracted by 5% in 2009.


170

the case of the growth of manufacturing added value. The growth of the negative industrial trade balance in the 2000s should also be highlighted, as a result of the trade liberalization strategy and the type of linkages that the manufacturing sector maintains with the US industry.

In any case, as of 2012–2017 the situation completely changed. The economy grew above 2%, as well as the manufacturing value added, while the GDP in Argentina and Brazil stagnated, and then, as a consequence of the implementation of a neoliberal approach, both economies entered into an economic depression period. In the case of Argentina, as we already stated, the Presidency of Macri and his pro-market policies caused a radical shift in the economic model from the inauguration day. But, despite promises to do better, the economic results of the Macri adminis-tration were not successful. Not only continued the stagnation of the economy (0.5%), but it deepened the manufacturing trade deficit; the value added of the industry continued to decrease (−1.2%), and seriously damaged the external accounts of the economy; in addition, its policy of indebtedness turned out to be even more acute than that carried forward by the military dictatorship and the dismantling of public policies aimed at strengthening development sharpened the productive crisis (Fig. 6). In the case of Brazil, this was expressed in a weak economic growth (0.5%, annual average 2012–201514), a fall in the industry value added (−3.5%), and, also, a rise in industrial trade deficit. The application of neoliberal policies after Rouseff’s impeachment in 2016, under the Presidency of Temer, did not change the economic situation; on the contrary, the GDP fell 1.2% (2016–2017, annual average), the manufacturing value added manufacturing dropped even more (1.9%), and the overall rate of unem-ployment rose by 58% between 2015 and 2017 ending in 13.3%.

3.3 Industrial Policy and State’s Role

The return of industrial policy and an active (or developmental) state is another feature shared by Argentina and, more emphatically, Brazil; while Mexico, on the other hand, chose a different (non- interventionist) path.

14 In the last year of this sub-stage the GDP plummeted almost 4%.


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In the case of Argentina, it is important to mention that the starting point of the postconvertibility period was critical. The country seemed to be trapped in an endless cycle of depression; and, in that context, the manu-facturing industry had also been affected by the application of neoliberal policies. As a result, a considerable part of the industrial structure, its pro-ductive capacities and pre-existing technologies, as well as the level of employment were destroyed. The pattern of specialization was also an pale expression of the lack of development policies for years: the low complex-ity activities (mainly food, wood, and paper) and the medium- low techno-logical intensity sectors (in particular, fuels, rubber and plastic, iron and steel, among others) accounted for more than three quarters of the pro-duction at the beginning of the 2000s (Abeles and Amar 2017, 116). Likewise, the sector registered a strong concentration process in which foreign capital was able to position itself as the main industrial actor.

The economic approach of the Kirchner Administration changed the state’s role, leaving aside the dominant pro-market approach and adopt-ing a developmental state’s orientation. Nevertheless, the main tool to stimulate tradable sectors was the macroeconomic environment and in particular, a competitive exchange rate. The industrial policy intervention was mainly horizontal, although the performance of the industrial sector was outstanding (Porta and Fernández Bugna 2008; Coatz et al. 2015). In fact, almost no progress was made in order to define a strategy and implement public policies tending to sustain a reindustrialization process (Azpiazu and Schorr 2010b, 138).

Despite never having put together an articulated industrial develop-ment plan, different initiatives were carried out in the manufacturing sector, especially in the last years of Cristina Fernández’s term (2011–2015). The objective was to boost the growth of the automotive sector, and improve the performance of many regional economies (in particular, mining, forestation, and fishing). Also, among the innovations intro-duced, there was a strong effort to re-prioritize the national scientific and technological system through the creation of the Ministry of Science, Technology and Productive Innovation; and expand resources for techni-cal education. It should be noted that neither the use of defensive instru-ments nor credit policies were used actively during much of the period, even though they gained importance over time.


172

As a result of the lack of planning and due to the inheritance of long standing policies, there were different “overlapping geological layers” of industrial policy instruments (Baruj and Porta 2006), without technical coordination or centralized vision, and with clear deficiencies in monitor-ing their results. Even so, the state played a more active role since the international crisis, and there was a progressive increase in the degree of intervention, whether actively implementing trade defense policies, mixed industrial policy initiatives -including horizontal and vertical tools-, or by designing strategic plans, such as the Industrial Plan 2020, the Agricultural Strategic Plan 2010–2020; or, later on, the National Plan for Science, Technology and Innovation, Innovative Argentina 2020.15

In the same sense, during the 2000s industrial policy in Brazil was back on track again as a central piece of a development strategy. It is important to highlight this point, given that industrial policy was a fundamental fac-tor in the industrial development from 1930 to the end of the 1970s. The economic crisis of the 1980s implied the abandonment of this policy ori-entation, while during the 1990s the neoliberal agenda prioritized eco-nomic opening and structural reforms. The victory of Lula Da Silva in 2003, in this sense, was a new beginning (on a different international context).16 In fact, during the mandates of Lula Da Silva and Rousseff Brazil had a proactive mix industrial policy. The first initiative was the launch of the Industrial, Technological and Trade Policy Plan (PITCE, 2004–2008), which objective was to encourage strategic sectors (semicon-ductors, software, machines and equipment, medicines) as well as other potential initiatives in biotechnology, nanotechnology, and renewable energy. The implementation of the plan led the government to approve new regulations, create a new institutional framework, and develop new financing tools (Kupfer 2012). Then, it was launched the Productive Development Plan (PDP), in force between 2008 and 2010. The PDP was aimed to strengthen the country’s economy, sustain growth, and encourage exports through the acceleration of fixed investment, the stimulus to

15 For further information about the technological and industrial policy in Argentina during the 2000s, see Lavarello and Mancini (2017).16 See Wylde (2012) for a detailed analysis of the Brazilian developmental regime under Lula’s term.


173

innovation, a better international insertion of Brazil, and the increase of exporting SMEs (Ninomiya 2015, 67). After the implementation of the PDP, another Plan (“Brasil Maior Plan”, 2011–2014) was designed to fur-ther stimulate innovation and national production, increasing the competi-tiveness of the industry in domestic and foreign markets.17 It included incentives for investment and innovation, measures to promote exports, trade defense tools, and special regimes to strengthen the manufacturing sector. Nonetheless, despite the application of these programs, the perfor-mance of the industrial sector fell short of expectations.

In the case of Mexico, its articulation to the world economy fomented during the 1990s was subordinated to the strategies of the transnational corporations and to the United States. Consequently, and considering that the industrial policy was based on promoting static competitive advantages, a productive specialization in low-technology industrial seg-ments, intensive in the employment of low-skill workers whose competi-tiveness relies heavily on low wages was consolidated. The passive state’s role with a pro-market approach was not helpful to modify this situation, taking into account that industrial policies, planning, the use of trade defense instruments, and the role of public banks were mainly passive throughout the period. In fact, during the 1990s and 2000s the domi-nant discourse stated that the best industrial policy was none at all (Alvarado and Padilla 2017). However, despite the dominant discourse in past decades, it can be affirmed that the federal government in Mexico continued to implement a wide variety of industrial policy instruments. As a result, three decades of global activity have just allowed local compa-nies to sustain their competitiveness, fundamentally, in wage differences and geographical proximity to the United States (Capdevielle 2005), but it was not possible to develop neither a complex industrial framework nor a sustainable strategy of GVCs participation.

In addition, the manufacturing exports expansion led by the maquila segment did not boost the GDP’s growth as a consequence of the lack of linkages with the domestic economy. The overall result was a consolida-tion of the industrial trade deficit. And this has an additional (and nega-tive) effect. In order to offset the current account deficit, the country

17 For further information about industrial policies in Brazil, see Laplane and Laplane (2017).


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must have a persistent policy of attracting foreign capital. Thus, in an international context where financial capital has a predominant role, the Mexican economy ended up strongly subordinated to financialization.

An indirect approximation to the effort made by these countries dur-ing the period under analysis is obtained analyzing the share of expenditures in research and development to GDP (see Fig. 7). In this regard, the three countries increased their share since mid-2000s. Brazil is the most prominent case, followed by Argentina, and then Mexico. Although the share is still far from that of the OECD or the United States (higher than 2%), its trend is a positive sign.

3.4 Pattern of Specialization and Economic Concentration

Notwithstanding the aforementioned, some points in common should be stressed. In particular, no country experienced a substantive change in its pattern of specialization during the 2000s. In this sense, it seems clear that if the source of economic growth in the long term lies in the technical

Fig. 7 Gross domestic expending on research and development, total % of GDP. 2000–2014. Source: Own elaboration using World Bank statistics


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progress and the transformation of the productive structure that it pro-motes (Cimoli et al. 2005, 32), Argentina, Brazil, and Mexico still have to work hard to tackle this challenge. Moreover, according to Cepal (2016, 574), the region has lagged behind in the last decades in terms of produc-tivity and reduction of the technological gap with advanced countries. Even when the 2000s commodity boom was positive by enabling higher growth rates and reducing the levels of poverty and inequality; it rein-forced the traditional patterns of specialization, in a world in which a part of the economies in development (and in particular China) transformed their productive structures, and a part of the developed economies pro-moted a new technological revolution.

In this sense, when analyzing the industrial trade balance by branch in the 2000s (2003–2017, annual average), and classifying the sectors by its techno-productive particularities and the factorial intensity of the activi-ties, it is possible to notice some relevant issues (see Table 3).18 First, there were three branches in which all countries had a trade relevant deficit during the period under analysis: capital-intensive, chemical and basic metals, and natural resource-intensive sectors. It should be noted that the first two branches are of central importance for industrial development. However, it is appropriate to issue certain caveats here, since the average of the period hides specific situations. For example, in the case of capital- intensive sectors, the three countries have a persistent trade deficit throughout the period; while Brazil and Argentina had a negative trade balance in the natural resource intensive sector as of 2010, while Mexico registered it throughout the entire period. Finally, Argentina and Mexico had a negative balance in chemical and basic metals all along this period, but Brazil experienced this result since 2007.

18 Following the methodology elaborated by Porta et al. (2014). It classifies all groups of activities according to the International Standard Industrial Classification of All Economic Activities (ISIC Rev. 3.). In particular, we breakdown section D (Manufacturing), which includes divisions 15 to 37, and then we classify all groups of branches to three digits in six main categories. The resulting categories are: food, beverages, and tobacco (which includes the groups 151, 152, 152, 154, 155, and 160); labor intensive (groups 181, 191, 192, 201, 202, 221, 222, 281, 289, 361, and 369); natural resource intensive (groups 171, 172, 173, 210, 261 and 269); chemical and basic metals (groups 241, 242, 271, 272, and 273); automotive (groups 251, 252, 341, 342, and 343); and capital intensive (groups 291, 292, 293, 300, 311, 312, 313, 314, 315, 319, 322, 323, 331, and 332). The rest of the products are part of the seventh category “Rest non-manufacturing activities”.


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Second, in labor-intensive industries Argentina and Mexico also had trade deficits. Contrarily, in the case of Brazil there was a slight surplus. Third, the automotive industry had a negative balance for both Argentina and Brazil. Mexico, on the other hand, experienced a strong positive bal-ance, which is explained by its role as supplier of the United States within the productive configuration strategy of transnational companies to meet the US market demand. Fourth, the role of the food, beverages, and tobacco industries in the cases of Brazil and Argentina stands out as the central pillar of the trade surplus. But this is not the case of Mexico, which has a negative balance in this industrial sector. And last but not least, we must underline that a very relevant part of the trade surplus of the three countries is located, not coincidentally, in the non- manufacturing sectors (our category “Rest non-manufacturing activities”).

As a general trend, it is possible to observe that as the techno- productive complexity is greater, the result of the trade balance worsens for all coun-tries. The automotive sector in Mexico could be the exception that proves

Table 3 Trade Balance by industrial branch (2003–2017, annual average). Argentina, Brazil, and Mexico. Millions USD

Source: Own elaboration based on Comtrade, following Porta’s et al. (2014) methodology.


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the rule, but its (low) domestic degree of integration and its particular characteristics, analyzed in this volume (Mariña Flores and Cámara Izquierdo 2019), reduce its relevance. If we add to this that throughout the period under analysis, the three economies went through an increase in the level of concentration as well as a rise in the role performed by foreign capital; the pattern of productive specialization of the region is also increasingly dominated by interests that not only take local econo-mies into consideration when defining their growth strategies.

As a final comment regarding the pattern of specialization, it is well known and evident that late industrializers face enormous constraints. Many reasons explain this situation. Among them, it is undeniable that the configuration of the world economy decisively conditions the alterna-tive trajectories available for peripheral capitalist economies. But this is not the only factor at play. The legacies of Neoliberalism in the produc-tive sector, the manufacturing profile of specialization in low-technology industrial segments, the economic concentration and the role of foreign capital in Latin American economies, the reduced policy space for state’s policies, the lack of adequate planning and resources, and the difficulties in obtaining (and maintaining) political support in a democracy for a project of structural transformation are just a few challenges ahead. In the next section, we will examine in depth the different analytical positions and recommendations of those authors and institutions in favor of struc-tural change, pointing out the pros and cons of each approach.

Another significant dimension to analyze is the level of concentration of the economy in the countries under analysis. In order to study this phenomenon we use the information provided by AméricaEconomía (2009 and 2017) which presents information for the 500 largest corpora-tions of Latin America. According to this source, the companies of Argentina, Brazil, and Mexico account for an average of 78.5% of the sales of the these corporations and shows an increase of 3 p.p. in the level of concentration of the biggest firms in terms of sales for the period 2004–2016 ending with a share of 82.4%. As we can see in Fig. 8, Brazil is the country with the highest participation within the group of largest corporations of Latin America, and during the presidency of Lula, its share registers a strong increase reaching 45.2% of the total in 2009 (226 firms), to then reduce its relative participation and end up in 2016 with


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the lowest level of the period under analysis (38% given by 190 firms). The second most important country in terms of large companies is Mexico, which has an average participation of around 26% throughout the period and exhibits a growing trend after overcoming the interna-tional financial crisis which also ends up with 129 firms of the 500 larg-est. Contrary to the two countries just analyzed, Argentina shows a marginal participation in the 500 largest corporations: it is concentrated on average around 35 firms that are grouped around those of less impor-tance, with only Techint and Yacimientos Petroliferos Fiscales (YPF) among the 100 most important.

In addition to the rise in the level of concentration, this period also shows a strong increase in the role of foreign capital and its dominance within the business elite, which goes from representing 24.2% of the total sales of the 500 largest corporations in 2008 to control 30.4% in 2016 (AméricaEconomía 2017). This implies an increase of 25.6% relevance of

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Fig. 8 500 largest corporations in Latin America, by country and share of total sales. 2004–2016. Source: Own elaboration based on AméricaEconomía (2017) and AméricaEconomía (2009)


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foreign capital and occurred in parallel with a decrease in the weight of companies controlled by the State, which in 2016 represented only 27.7%. Even though the number of companies controlled by the State in the region did not substantially change over the period (even it registered a small increased due to the re-nationalization of YPF in Argentina), the raise in the role of foreign capital over the region is mainly explained by the sharp fall in the total sales of state’s firms (mainly from Petrobras and Pemex which still dominate the ranking but with much lower sales volumes).

Despite the increase in the level of concentration of the 500 largest cor-porations in Argentina, Brazil, and Mexico, the share of the largest corpora-tions operating in the manufacturing sector in this group is practically irrelevant. The explanation is quite simple. The main companies in the rank-ing are concentrated in sectors linked to the exploitation of natural resources. In this sense, among the first 25 firms in the ranking of 2016, 22 of them are focused on the following six economic sectors: oil and gas, energy, bio-energy, beverages and liquors, food, and mining. Besides the low relevance of the largest industrial companies, the few existing studies that focus on the level of concentration of the manufacturing sector (Azpiazu 2011; Kupfer et al. 2009; Mariña Flores and Cámara Izquierdo 2019; Santarcángelo and Perrone 2012) show that the level of industrial concentration has increased in the countries under study throughout the period, as well as the relevance of foreign capital in the manufacturing sector of Argentina, Brazil, and Mexico. As a result, we have an industrial elite that has a significant and growing dominance over the manufacturing sector but that has practically no incidence within the group of large companies that operate in the region.

4 Conclusions

The purpose of the chapter has been to review the transformations in the global economy and to study the performance of the manufacturing sec-tor, its external trade and degree of technological dependence as well as the specific role played by the state and industrial policy in Argentina, Brazil, and Mexico, the three most industrialized countries in Latin America. The focus of the article is on the manufacturing sector since it is, still today, the strategic sector for development. Its potential for


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creating linkages and dynamic increasing returns can induce structural change and increase the productivity of the economy. Moreover, manu-facturing acts as a belt drive between scientific and technological oppor-tunities, and the rest of the productive system. And it is also the source of organizational innovation, and the origin of the creation of new services of high productivity (Lavarello 2017, 60).

As we were able to observe in the first section, the world had changed enormously in the last decades, at the rhythm of the reshaping of produc-tion systems on a global scale. Also, the degree of interdependence among countries has increased notably and a transformation occurred in how goods and services are produced, which became articulated in GVCs. Trade and financial operations have also contributed to restructure the relationships between world’s economies as well as an impressive techno-logical revolution.

In this new world, in which China also stands out as a world economic (and industrial) power, the economic and manufacturing development of the emerging economies is a very challenging task. For example, at present countries can no longer apply -or have narrowed margins- many trade and industrial policies such as import restrictions, tariffs, subsidies, etc., due to the existence of different international (multilateral, regional, or bilateral) agreements, as the WTO Agreement (Padín 2017). Likewise, the old industrial promotion policy has been transformed, giving rise to a new industrial policy aimed at supporting research, development, and innova-tion activities, as well as capacity building initiatives, among other issues. In this sense, it is clear that the rationale for and content of industrial poli-cies has changed greatly since the beginning of the twentieth century and especially over the last 20 years (Bianchi and Labory 2006, 3). And this occurred in a world economy where the transnational corporations lead the development path and central authorities seem no longer to have the coercion and command powers they used to have—at least in Brazil, Mexico, and Argentina—during the state-led industrialization. This implies, consequently, that industrial policy needs to be adjusted to con-texts where national states had a different power and role.

In addition, the legacies of the implementation of neoliberal policies deteriorated the starting point for manufacturing development in Latin America in the twenty-first century. Among them, stand out the regressive


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restructuring of the industrial sector, the lack of adequate infrastructure and logistics, high transportation costs, poor policies for export diversifi-cation, or the lack of institutional capacity for analyzing, proposing, implementing, and evaluating industrial policies. As a result, the Latin America industrial sector has specialized in low and medium technology activities, which presents a dramatic level of external dependence that manifests itself not only in the dependence on imports of intermediate inputs and capital goods but also in the deficit that have their branches of higher value added. Moreover, foreign capital has increased its power within the analyzed economies and a raise in the concentration levels of the manufacturing sector has been recorded. As a result, a strong and marked deterioration in the living conditions of the industrial working class of Argentina, Brazil, and Mexico, despite the industrial growth per-formance registered in recent years.

In this general framework, the comparative study allows us to high-light some relevant features. First, the period of economic growth that started in 2003 only has a similar background at the beginning of the 1970s when the ISI model was guiding the development process. Second, the manufacturing value added performance reveals significant heteroge-neities among the countries analyzed. Argentina had the highest growth rate from 2000 to 2016, achieving a value increase of almost 66%; the second best performance is that of Mexico with almost 23%, and show-ing a slight upward trend only interrupted by the international financial crisis; and finally, Brazil only achieves an increase in manufacturing value added of 4%, but it loses a good part of the achievements made in the last two years (the added value drops almost 20 p.p.).

Third, although the above information may seem to indicate the appearance of an incipient process of reindustrialization (especially for the Argentine case), the study of the manufacturing value added relative to the total value added of the economy shows that there have been no great transformations in the relevance of the industrial sector for the countries analyzed. In this sense, no country experienced a significant structural change (Mariña Flores and Cámara Izquierdo 2019; Medeiros et al. 2019; Santarcángelo 2019). Moreover, the cases studied showed us that changes in the productive structure tending to reindustrialization are not achieved only with general macroeconomic measures and the


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specialization according to static comparative advantages; they require a set of specific industrial policies, accompanied by the development of an exhaustive diagnosis and the elaboration of a strategic plan. Without these elements, industrial development in Latin America will continue to be conspicuous by its absence.

Fourth, the Presidencies of Néstor Kirchner, Cristina Fernández de Kirchner, Lula Da Silva and Dilma Rousseff meant for both Argentina and Brazil the abandonment of neoliberal dogma and both administra-tions can be characterized by an active state intervention that has reversed some of the legacies of Neoliberalism. As a result, and despite the limita-tions that each one presents, the industrial policy of these countries shows very significant changes between the nineties and the beginning of the twenty-first century. The result was, in both cases, an increase in employ-ment and a progressive improvement of income distribution; and, espe-cially in the case of Argentina, the recovery of some sectors that stopped (and even partially reversed) a long cycle of relative deindustrialization. However, the performance of the manufacturing sector in recent years, fueled by the rise of new governments seeking to reinstate the neoliberal dogma and the supremacy of markets, opens serious questions about the potential ability of these countries to achieve a relatively autonomous industrial development in the long term.

Fifth, Mexico’s free market development strategy has been the same for the last 30 years and therefore, its industrial policy shows a greater degree of continuity, characterized by its orientation to stimulate exports, the development of the maquila and the strengthening of international eco-nomic ties. The industrial performance exhibited by Mexico clearly shows the structural limits of this industrial development strategy, as it has proved ineffective so far in generating links with the rest of its domestic productive sector, and exposes the problems generated by an interna-tional integration scheme based on predatory conditions of the labor market (Schteingart et al. 2017).

Sixth, it is essential to incorporate in the comparative analysis the cur-rent political situation of each of the countries analyzed and in particular of its former Presidents taking into account the importance of this issue regarding the application (and deepening) of neoliberal policies, or the return to heterodox active policies. On the one hand, we have the cases


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of Argentina and Brazil where the ex-presidents Cristina Fernández de Kirchner and Lula Da Silva are being prosecuted, under legal procedures plagued by arbitrariness (to say the least); which have the ultimate goal of removing them from the political arena. On the other hand, the opposite case is living Mexico with the arrival to the Presidency of Andres Manuel Lopez Obrador (AMLO) on August 8, 2018. AMLO expresses the Mexican aspirations and desire for a change toward economic policies that respond to the needs of citizens, above the interests of the elites; which aims to prioritize the poor; combat violence by overcoming inequality; and achieving peace through Justice. Time will tell whether he is able to accomplish these tasks.

Another element that is worth incorporating into these final reflections are the lessons that can be drawn from the successful cases of economic development based in Southeast Asia. Different elements can be high-lighted. First, one of the keys to development in the countries of this region of the world, contrary to what neoclassical theory states, was that state’s conscientiously has attempted to “get the prices ‘wrong’” (Amsden 2001, 10). The government idea was not only to disrespect the free market laws but to deliberately alter them by encouraging the development of strategic sectors for the purposes pursued. This strategy was not given indiscrimi-nately, but was regulated by the principle of reciprocity where, for exam-ple, a subsidy was tied to a standard performance such as 100% exporting (Amsden 2001, 10). In addition, an effective system of rewards and pun-ishments was applied where benefits were granted to companies that com-plied with the agreement but above all and most importantly, the benefits were taken away from those who did not comply with the agreement.

Regarding the industrial policy of the mature tigers, Lall (2017, 92) showed us that selective as well as functional interventions played vital roles in the industrial and technological development of the most dynamic econ-omies in the developing world; governments in the tigers could devise and implement complex interventions effectively; and its capabilities were improved over time, with growing levels of skill, remuneration, and insula-tion allowing bureaucrats to operate efficiently and autonomously. Also, the experience of the Asian tigers allows us to conclude that there are many dif-ferent ways to design and implement industrial policy; but the analysis of the successes and failures could offer us important lessons on what to do now.


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Finally, it is important to keep in mind what the main (dominant) theories of development tell us. This is quite helpful as far as it underlines different aspects to be considered (or discarded) in a development strat-egy. In this sense, first we have the free market advocates, who maintain that the road to industrial development must be based on the use of com-parative advantages. This is the position of the main international organi-zations that, of course, favors the dominant countries and erodes the possibilities of achieving true development. The second group corresponds to neo-structuralism authors. In their best versions of it, they focus the analysis on heterogeneity, structural change, productivity gaps and the role of the knowledge society (Cimoli et al. 2005, 6). According to these works, in recent years the old heterogeneity evolved toward a new pattern in which not only differences of inter and intrasectorial productivity pre-dominate, but also differences in the capacity to generate and spread tech-nological change in the economic agents. For these authors, Latin American economies are lagging behind both in terms of changes in the weight of knowledge-intensive sectors in the industry and in the evolu-tion of productivity levels (Cimoli et al. 2005, 6). Although this approach supposedly is the continuation of Latin American structuralism, its axis of study are much more focused on technological issues and changes in the productive structure, leaving aside key aspects such as the operation of the center-periphery system; its current evolution and transformation; or on the way in which global changes affect developing countries.

Another important theory that seeks to explain the current challenges of developing countries are the ones that emerges from the neo- evolutionist or neo-Schumpeterian paradigm. For this approach, the key to development is given by technological change and entrepreneurs plays the leading role in the development of the system. The focus is on explain-ing how less developed countries can acquire the capacity to appropriate the benefits of technological change; and therefore, study several dimen-sions of technical change and particularly the production network link-ages, the innovation processes, the social management of technologies, the development of innovative capacity and the strengthening of the competitiveness of firms (Yoguel et al. 2001, 2004). Although this approach focuses on the study of one of the most important factors for achieving economic development, it often leaves aside dimensions that


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were crucial to Schumpeter, the founding father and pillar of this school; which refer to the functioning of the capitalist system, its specific evolu-tion and the impact it has on developing countries.

The last approach that is gaining relevance in the current literature and is worth mention is the analysis through GVCs. The GVCs focus on analyzing how global production networks are structured and how coun-tries participate in them. They allow us to analyze the emergence of new centers of political and economic power and the increase of productive trans-nationalization given by advances in communication and transpor-tation. They are focus on analyzing the different types of governance that chains have as well as the types of upgrading strategies that can be used. According to this approximation the current challenges for underdevel-oped countries consist in finding ways of insert themselves in the chains in which they do not participate; and to move to production nodes of greater value added in the chains in which countries are already inserted. Although the GVC is an approach that has many more elements of global dynamics under consideration, the appropriation made by certain insti-tutions, such as the WB, OECD, IMF, WTO, and UNCTAD, has been made in a way that seeks to enhance the benefits of globalization, liberal-ization, and economic deregulation for developing countries (Schteingart et al. 2017). As a result, it would seem that the development process does not involve real competition between companies, countries and sells the cheat idea that somehow everyone can join the GVCs and win. Thus, power between countries does not play any significant role, and only manifests itself in the type of control that exists within the GVC.

As we can see, the dominant approaches in development economics promote the liberalization of the economy and the use of comparative advantages (neoclassical); or focus on specific issues and characteristics within each of the countries examined (neo-structuralist or neo- Schumpeterian); or take a global approach that serves to examine a par-ticular sector or chain but which does not include the hierarchical and power dimension between developed and developing countries (GVC). In this sense, we believe that it is crucial to recover some of the analytical dimensions the radical approaches, that were very popular in the 1970s, had (imperialism, center-periphery approach, etc.); in particular, the articulation between global system dynamics with the specific economic, social, and political characteristics of each of the countries analyzed.


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As we have analyzed, the global economy comprises hierarchies of pro-duction which, in turn, mean that the world market is not the level play-ing field that neo-liberals usually describe. In fact, late industrializers face enormous constraints, both in developing effective producers that can compete with foreign capital in their domestic economy, and in breaking into export markets and thereby competing in the world economy.

However, these barriers are not completely insurmountable, and the East Asian NICs have enjoyed some considerable success on both fronts. But their success rested on geopolitical considerations, favorable world market factors, and the existence of a strong, effective state that was able to discipline capital as well as labor. Nowadays, the neoliberal dominance of international trade, as well as financial and development institutions, hinders the prospects for successful late industrialization. Therefore, an alternative strategy outside of this paradigm must be attempted.

This situation leads us to reaffirm that we first need a comprehensive diagnosis of where are we standing, and which are the challenges that we have in front of us. We also need the wisdom to realize which challenges we can possibly face (and that is worth trying). Likewise, it is essential to recover the systemic visions. But this recovery must be done without los-ing sight of the fact that the systemic vision must be linked to the specific analysis of each of the countries studied and of the region. This means taking the immanent unity of the capitalist world market as the starting point of the investigation and, as a consequence, grasping changing pat-terns of national or regional differentiation as concrete forms taken by global capital accumulation in each national space of valorization (Fitzimons and Starosta 2017, 19). This double articulation is a key ele-ment to understand the real challenges and possibilities that countries have to achieve industrial development within current capitalism.

Also, given the enormous centrality that foreign capital has acquired, it is worth recovering certain studies that question the implications of the development of industrialization strategies based on exports of manufac-tures. As Landsberg (1979) argued many years ago, in this new strategy of export-led industrialization, transnational corporations play a major role, and by promoting only certain Third-World exports of manufac-tures, transnational corporations are using this strategy to help expand and control a new international division of labor. This development leads


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not to self-expanding Third-World industrialization, but to dependent industrialization as part of a new form of imperialist domination (Landsberg 1979, 50).

It is necessary to rethink and recover the systemic dimension in the manufacturing studies; but the idea of considering alternative strategies toward industrial development in Argentina, Brazil, and Mexico, and more generally in Latin America; means proposing a development model where the working class should (and have to) play a stronger political and economic role. In Latin America we have wide experience that the state alone is incapable of facing the power of large corporations. Industrial development requires not only an articulated plan capable of dealing with the global and local challenges, but also a transformation of the society and a new configuration of forces. Until the working class regains its place, development will remain a mere utopia.

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193© The Author(s) 2019J. E. Santarcángelo (ed.), The Manufacturing Sector in Argentina, Brazil, and Mexico, Palgrave Studies in Latin American Heterodox Economics, https://doi.org/10.1007/978-3-030-04705-4

Index1

1 Note: Page numbers followed by ‘n’ refer to notes.

AAccumulation, 4, 5, 13, 17, 18, 20,

26, 32, 34, 38, 56, 62, 63, 64n4, 65, 70, 71, 74, 88, 97–99, 101, 104, 108, 117, 126, 141–146, 186

Agricultural commodities groups, 74, 76, 78, 79, 81–83, 85, 88, 91

Automotive industry, 22, 23, 43, 176

BBackward linkage, 63, 85, 87Beverages and tobacco, 27, 28,

30–32, 35, 42, 45, 114, 115n8, 120, 122, 125, 127, 131, 134, 137, 140, 175n18, 176

Bolsa Familia, 70Business elite, 36

CCambiemos, 20Capital intensive, 27, 175, 175n18Cardoso, Fernando Henrique,

4, 63, 165China, 42, 45, 52, 62, 67, 82, 100,

120, 127, 155, 156, 158, 159, 163, 175

Commodity prices, 13, 62, 67–70, 163Competitiveness, 11, 16, 20, 46–48,

52, 63, 67, 68, 71, 72, 79–84, 89–91, 102, 103, 111, 136–138, 141, 142, 145, 146, 153, 156, 171, 173, 184

https://doi.org/10.1007/978-3-030-04705-4

194 Index

Competitiveness indicators, 63, 67, 79, 89, 90

Concentration, 2, 4, 24, 25, 36, 37, 53, 111, 118, 127, 134, 154, 159, 167n11, 171, 177, 181

Argentina, 2, 36, 159, 181Convertibility regime, 10, 25,

28, 29, 36–38, 40, 43, 46, 164, 165

Crisis2001 Argentina, 8, 36Argentina, 10, 25, 32, 37, 50, 53,

55, 150, 164global financial, 14, 28, 30, 40,

150, 164profitability, 98–100, 102

DDebt restructuring, 16, 20, 21

Argentina, 20Deindustrialization

Argentina, 3, 8, 23, 53, 54, 182Brazil, 3, 61, 63, 71, 77,

89–91Demand-led growth, 64, 66, 70Density of the interindustry

relations, 63, 67, 71, 84–90Dependency on imports, 121–125,

143, 146, 181Devaluation, 21, 32, 36, 37, 98,

107, 110, 111, 116–118, 121, 127, 144, 165

Dynamic export manufacturing subsectors, 114n8, 118, 120, 121, 134

EEconomic growth

Argentina, 5, 12, 16–18, 29, 150, 163, 164, 175

Brazil, 5, 62, 64, 68–73, 89, 150, 163, 164, 170, 175

Mexico, 5, 101, 126, 127, 130, 131, 142, 143, 150, 163, 164, 175

EmploymentArgentina, 3, 4, 8, 9, 12, 18, 19,

23, 29–35, 50, 51, 54, 55, 151Brazil, 3, 63, 65–68, 73, 76–78,

89, 151Mexico, 3, 100, 101, 103, 103n2,

126, 128, 137–142, 145, 146, 151, 173

Encuesta Nacional a Grandes Empresas (ENGE), 24, 24n7, 26, 37, 38

Exchange rateappreciation, 16, 18, 19, 69, 71,

80, 169competitive, 11, 16, 171

Exchange rate clamp, 21Argentina, 21

Exports, 8, 62, 103, 153Argentina, 8, 10, 14–17, 20,

39–43, 45, 46, 48, 49, 51, 54External constraint, 2, 9, 19, 20, 40,

41, 52, 165Argentina, 2, 9, 19, 20, 40, 41, 52

External indebtedness, 9, 13, 53, 99, 165

Argentina, 9, 13, 53External markets, 11, 68, 79, 83–86,

84n12, 90Brazil, 68, 79, 83–86, 84n12, 90

195 Index

External openingindiscriminate nature, 102–107Mexico, 5, 99, 101–104, 107–

127, 131, 137, 138, 141, 143, 145, 146

stages of, 101–107, 109n4, 111, 115, 118, 124, 127, 134, 136n15, 136n16, 138n17, 146

FFinancial crisis, 14, 28, 30, 40, 50,

150, 159, 161, 162, 164, 181Financialization, 4, 8, 54, 100, 101,

144, 147, 174Financial regulations, 159Financial valorization, 8, 20, 29,

49, 100Argentina, 8, 20, 29, 49

Fixed investment, 132, 134n12, 172Foreign capital, 24, 25, 36, 38, 39,

42, 46, 53, 106, 144, 145, 171, 174, 177, 181, 186

Argentina, 24, 25, 36, 38, 39, 42, 46, 53

Foreign Direct Investment (FDI)Mexico, 101, 131, 132, 134, 137,

142, 146Forward linkage, 63, 85, 87

GGeneral Agreement on Tariffs and

Trade (GATT), 106, 110Global value chains (GVCs), 2, 8,

52, 54, 62, 65, 66n5, 107, 121, 143, 146, 154, 155, 173, 180, 185

Golden age, 151Great Depression, 14, 98Great Recession, 118n10, 119, 121Gross domestic expending on

research and development, 174Gross domestic product (GDP)

Argentina, 7, 10, 12–15, 50, 51, 170

Brazil, 61, 64, 68–70, 89, 169, 170

Mexico, 98, 101, 111, 118n10, 127, 131, 144–146, 169n13

Gross fixed capital formation (GFCF), 24n7, 64, 69, 132, 134, 135, 142

Mexico, 132, 134, 135, 142Growth regimes, 66

HHirschman, Albert, 65, 85Holdouts, 16, 20

IImports, 3, 7, 9, 14, 16, 18, 19n3, 20,

22, 39–41, 43–46, 49, 51, 67, 71, 79, 80, 82, 83, 86, 88–90, 97, 102, 105, 106, 111, 111n6, 114, 114n8, 115, 115n8, 121–126, 137, 143, 146, 149, 160, 167n11, 180, 181

Argentina, 7, 9, 14, 16, 18, 20, 22, 39–41, 43–46, 49, 51

Import substitution industrialization (ISI), 3, 49, 97–99, 102, 104, 108, 111, 126, 141, 143, 149, 151n1, 181

196 Index

Income distribution, 3, 9, 14, 34–36, 55, 70, 101, 182

Argentina, 9, 14, 34–36, 55Indebtedness, 8, 9, 13, 21, 22, 53,

54, 99, 165, 170Argentina, 8, 9, 13, 21, 22, 53, 54

Industrial performanceArgentina, 5, 9, 26, 29, 150, 151,

163, 181Brazil, 5, 73, 82, 150, 151,

163, 181Mexico, 5, 150, 151, 163, 181, 182

Industrial policyArgentina, 9, 10, 22, 46–52, 54,

170, 172n15, 179geological layers, 49, 55, 172tigers, 183

Inflation, 11n2, 13–16, 18, 22, 22n6, 36, 63, 69, 70, 98, 100, 102, 106, 151, 155n5, 165, 166, 169

Argentina, 13–16, 18, 22, 36Innovative industry, 63, 67, 72–83,

73n7, 85, 87–92Brazil, 63, 67, 72–81, 73n7, 83,

85, 88–91Internal markets, 54, 62, 67, 70, 72,

79–84, 90, 91Brazil, 62, 67, 70, 72, 91

Internationalization of production systems, 52, 153

International Monetary Fund (IMF), 1, 10, 11, 13, 21, 98, 100, 102, 105, 150, 153, 156, 159, 165, 185

International reserves, 13, 18, 145, 169

Argentina, 13, 18, 169Investment-output ratio, 62, 64, 66,

68, 70, 73, 90

KKeynesian/Kaldorian perspectives,

61, 89Kirchner, Cristina Fernández de, 9,

13–17, 20, 28, 150, 182, 183Kirchner, Néstor, 1, 9, 11, 13,

15–18, 28, 36, 41, 51, 54, 55, 150, 165, 167, 171, 182

LLabor intensive, 27, 28, 30–32, 35,

42, 137, 141, 154, 155, 175n18, 176

Argentina, 27, 28, 30–32, 35, 42, 176

Labor productivity, 9, 31, 32, 34, 35, 55, 68–70, 73, 78, 80–82, 90

Argentina, 9, 31, 32, 34, 35, 55Largest corporations, 25, 38

Argentina, 25, 38Latin American structuralism, 46, 184Law of foreign investments, 25

Argentina, 25Liberalization, 8, 9, 40, 53, 103,

105–107, 117, 152, 153, 165, 167, 170, 185

Lopez Obrador, Andres Manuel, 167, 183

Lula Da Silva, 1, 63, 150, 165, 172, 182, 183

MMacri, Mauricio, 3, 9, 20, 21Manufacturing, 2–5, 7–56, 61–91,

97–147, 150, 151, 154, 156, 158, 159, 162–171, 167n11, 167n12, 173, 175n18, 179–182, 187

Argentina, 2–4, 7–56, 164, 181

197 Index

Manufacturing export-led (MEL), 5, 101, 141–146

Mexico, 101, 141–146Maquila, 2, 103, 105, 106, 109,

110, 110n5, 111n6, 118, 122, 137, 142, 144, 146, 173, 182

exports, 103, 109, 110, 110n5, 118

MERCOSUR, 153Military dictatorship, 8, 21,

23, 170Argentina, 8, 21, 23

NNational Social Security

Administration, 15Argentina, 15

Natural resource intensive, 27, 36, 72, 175, 175n18

Argentina, 27, 36, 175Neo-evolutionism, 184Neoliberalism

Argentina, 8, 20, 29, 182legacies, 182

Neoliberal labor regime, 104Mexico, 104

Neo-Schumpeterian paradigm, 184Neo-structuralism, 184, 185Non-Automatic Licenses (LNA), 14

Argentina, 14North American Foreign Trade

Agreement (NAFTA), 106, 107, 116–122, 124, 125, 127, 131, 136, 136n15, 138, 152, 153, 167

OOECD industrial classification, 65Openness, 8, 52–54, 66, 115, 116,

124, 125, 152, 162Mexico, 115, 116, 124, 125

PPattern of specialization

Argentina, 171, 174Brazil, 68, 174Mexico, 174–179trade, 68

Postconvertibility regime, 165Precarization of labor, 5, 100–104,

137, 141, 142, 145–147Mexico, 5, 100–104, 137, 141,

142, 145, 147Productivity, 9, 12, 31, 32, 34, 35, 48,

55, 68–70, 78, 80–82, 90, 98, 101, 104, 126, 128, 131–143, 135n14, 136n15, 138n17, 146, 156, 175, 180, 184

Mexico, 98, 101, 104, 126, 128, 131–143, 146

Productivity growth, 98, 134–139, 135n13, 135n14, 136n15, 142

Mexico, 134–139, 135n13, 135n14, 136n15, 138n17, 142

RRate of exploitation, 34

Argentina, 34Rate of output growth, 66Rate of profit, 8, 55, 64n1, 71, 98,

100, 101

198 Index

Ratio of Labor productivity to real wages, 34

Argentina, 34Real wages, 2–4, 8, 9, 13, 14, 16, 22,

23, 32–35, 50, 55, 98, 101, 102, 104, 126, 128, 137, 139–144

Argentina, 4, 8, 9, 13, 14, 16, 22, 23, 32–35, 50, 55

Regime of accumulation, 98, 99, 108, 126, 141–146

Mexico, 98, 99, 108, 126, 141, 143–146

Reindustrialization, 3, 46, 50, 165, 171, 181

Reprimarization, 155Rouseff, Dilma, 4, 150, 166, 170RUFO clause, 20, 20n4

SState intervention, 20, 46, 49,

105, 182Argentina, 21, 46, 49, 182

State-led industrialization, 2, 149, 151, 154, 166, 180

State’s roleArgentina, 3, 5, 23, 51, 150, 164,

170–174, 180Brazil, 3, 5, 150, 164,

170–174, 180Mexico, 3, 5, 105, 150, 164, 166,

170–174, 180Structural change

Argentina, 13, 23, 36, 46–48, 54, 126–131, 180, 181

Brazil, 4, 61–91, 126–131, 180Structural heterogeneity, 29

Argentina, 29

Structural transformation, 10, 47, 97, 99, 102, 126, 141, 145, 146

Argentina, 10, 47Sworn Anticipated Declarations of

Importation, 18Argentina, 18

TTechnical progress, 5, 63, 65, 174Technological backwardness, 48

Argentina, 48Technological content, 27, 28,

30–34, 41, 43–45, 62, 72, 89Argentina, 27, 28, 30–34, 41,

43–45, 62Top export destination, 43

Argentina, 43Top import origin, 44

Argentina, 44Trade balance

Argentina, 10, 13, 18, 39–46structural deficit in Mexico,

143–147Trade liberalization, 8, 40, 152, 153,

165, 170Trade openness, 54, 152, 162Trump, Donald, 159, 162

UUnemployment, 10, 12, 16, 55,

104, 170United States (US), 2, 20, 21, 100,

105–108, 110, 118, 118n10, 119, 127, 127n11, 131, 134, 135, 141–145, 156, 159, 170, 173, 174, 176

199 Index

Universal Childhood Entitlement, 15Argentina, 15

VValue added in manufacturing, 2, 9,

12, 26, 62, 65, 66, 71, 89, 90, 108, 116, 150, 158, 159, 167n11, 168–170, 181

Argentina, 9, 12, 26, 169, 170, 181

Vulture funds, 20, 21

WWages

Argentina, 4, 8, 9, 13, 14, 16, 22, 23, 24n7, 32–35, 50, 55, 167

in manufacturing sector, 4, 23, 32–35, 126

Mexico, 2, 98, 99, 101–104, 126, 128, 131, 137, 140–145, 173

Washington consensus, 1, 9, 10, 21, 53, 149, 153, 165

Argentina, 1, 9, 10, 21, 53, 165Worker’s Party (PT), 63Working class, 3, 7, 8, 22, 23, 36,

53, 56, 100, 102, 181, 187Argentina, 7, 8, 22, 23, 36, 53,

56, 181, 187World Bank (WB), 1, 100, 150, 152,

153, 157, 159, 165, 166, 168, 174, 185

World Trade Organization (WTO), 106, 153, 180, 185

YYacimientos Petrolíferos Fiscales

(YPF), 18, 20, 51, 54

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