It seems like we are forced, for a lack of a better word, to live our lives under a constrained optimization problem where we are (ideally) given the freedom to choose where to allocate our time. This has implications on how we wish to distribute our labour according to our preferences, whether it is at the household or the market. Furthermore, our situation can only get more complex when we start considering whether we want to collaborate with a partner (in the case of a monogamous relationship) and aspire to efficiently live together, and potentially start a family. There are other variables to be considered in this, as there are social phenomena such as industrialization which affect productivity and consequently the preference over how people allocate their time. In the scope of this paper, I will explore the impact of industrialization in the U.S – Mexico border and New York City and discuss the consequences of premature deindustrialization. Let us first think of industrialization as the shift of aggregate labour from being focused on agricultural to manufactured goods, usually through mechanized production. More precisely, I take the concept of maquiladoras as the epitome of this change, which can be described as a low-cost factory that is usually owned by a foreign corporation. These tend to cluster across the rural U.S – Mexico border to reduce transportation, rent, and labour force costs. Similarly, I will also mention how this shift in industry also affected small business owners and aspiring entrepreneurs that dominated the preindustrial economy in New York. Ultimately, I do not mean to undermine the productivity and economic growth that has been possible through this mechanism and also acknowledge the consequences of premature deindustrialization, best described as the shift from manufacturing to service employment, when there is a lack of viable alternatives.
Before discussing the impact of maquiladoras on the Mexican border, it is worth exploring the context of the situation in terms of some microeconomic theory that explains, to some extent, why households might change their choices on their labour allocation. First let us consider an imaginary but typical household (constituted by a man, a woman and a child) in a preindustrial stage in Northern Mexico, where there are no market opportunities for women, but plenty for men. In this scenario, the man will have the comparative advantage in market goods and will specialize in the market while the woman will specialize in household goods. While there are plenty of examples of the fruits of household labour, let us focus on taking care of children and being a scaffold and source of support for her family. Now, let us shift to an industrial age with the surge and rise of manufacturing factories and consequently an increase in the market opportunities available for women, backed by some literature that claims that women represented 80-90% of the workforce in maquiladoras in northern Mexico (Williams & Homedes, 2001). In this new scenario, our imaginary household will most likely change their allocation of labour and have both of the parents spend more time at the market and less at the household, which will leave their child on their own and relatively with a lower source of support. It is worth remarking, that while there are policies and social programs that serve as incentives for promoting schooling for kids (e.g. Progresa/Oportunidades), the laws that would prevent children from being without supervision for extended periods of times are rarely, if not ever, enforced. Especially in the context of undeveloped rural towns in Northern Mexico where most maquiladoras settled. At this point, we need to consider this situation from a multidisciplinary perspective, considering the psychological and societal consequences of the loss in family cohesiveness and erosion of basic social values within a community (Williams & Homedes, 2001). It does not seem to be a coincidence that this period is also associated with a surge in gang activity and the concern of individuals leaving their education to pursue higher salaries at the manufacturing factories (Williams & Homedes, 2001). After all, before the industrialization of northern Mexico there were more household members allocating their time at home, providing an essential job at being a source of support which got impacted by industrialization. I believe this is a result of undermining household labour and the immediate nurturing effect it might have on family members. This is not meant to imply that women being able to allocate their time in the market should not be incentivized, but rather that there should have been a mindful allocation of household labour by both of the parents.
Other authors like Ruef, M (2020) have noticed the effect of industrialization in entrepreneurship. They noted that households were more likely to engage in business proprietorship in a preindustrial setting, where there was an extensive labour market made up of bonded workers (e.g apprentices, slaves) and large utilization of family members. We can also frame this scenario by thinking of a pre-industrial era as a situation where entrepreneurship has a relatively low opportunity cost, due to the fact there aren’t any other worthwhile alternatives, which would draw more individuals to engage in business proprietorship. Therefore, it does come by as a logical conclusion to think that entrepreneurship would be disincentivized by an increase in industrial opportunities, where there is a more competitive labour market that draws bonded workers and family members away from small-scale businesses. Ultimately, Ruef, M (2020) concluded that in theory, you can predict that institutional changes that reduce the size of the household labour pool will also be negatively associated with the ability of small entrepreneurs to stay in business. There are various similarities between this example and the maquiladoras in the USA-Mexico border. Both of them consider a change in the allocation of labour in the workforce under the assumption that they will be able to reach a higher level of utility by allocating more time in the market. Furthermore, both examples suffer from social externalities such as a loss in family/community cohesiveness, and a decline in business proprietorship.
While I have discussed some of the negative impacts of industrialization in terms of its social externalities, it is also worth acknowledging that individuals have collectively agreed to their terms since they implicitly decided that they would be ‘better off’. That is, they would comply with this change in the industry since this would allow them to reach unprecedented levels of productivity which under most microeconomic models is associated with higher levels of utility. It is here where I would beg the question of to what extent are these two terms linked, or what is the strict meaning behind ‘utility’. If we were to broadly define utility as the overall wellbeing of an individual, I believe that we should also consider the trade-off between equity and productivity. Originally described by Arthur Okun, chairman of the Council of Economic Advisers between 1968 and 1969, this trade-off can be seen as a contradiction between the nature of equality and productivity. In Okun’s words, “the conflict between equality and economic efficiency is inescapable”. According to this notion, industrialization, which is the embodiment of focusing on efficiency, would be associated with higher levels of productivity and lower levels of equity. Ultimately, this would imply that collectively individuals are not necessarily better off by shifting to industrialization if utility is based on both productivity and equity levels. However, as Greenstein, J. (2019) has noted, this does not mean that states should immediately deindustrialize as they might be doing so prematurely, that is they should not shift from manufacturing to service employment when there is a lack of viable alternatives. Some of the possible side effects of such outcomes include negative economic and health outcomes for workers and wage inequality (Greenstein, 2019). In addition, the same authors have also found evidence suggesting declining improvements due to expansion of industrial employment over time, indicating that industrialization suffers from diminishing returns and that is not sustainable as a means for development, but that its exiting should also be done carefully. While the authors do not elaborate at what point this should be done, we can extrapolate and propose that it would be when the returns of productivity are smaller than the relative returns that focusing on equity would bring. If we were to think about the previous examples, it would be when societal problems, lack of entrepreneurship, and low household labour out cost the benefits of high productivity.
The allocation of labour is a collective and universal dilemma that most people are familiar with. In this paper, I elaborated on the effects of industrialization in this predicament by discussing some of the societal consequences of what a shift in industry might look like. It seems that the efficiency of mechanized production significantly increases the opportunity cost of doing household labour, disincentivizing individuals from business proprietorship and even depriving some communities of social cohesiveness. This can be framed in the equity-productivity trade-off described by Arthur Okun, where we see these societal problems as a cost of increasing efficiency. Ultimately, this is not an attempt at discrediting industrialization as a means of production as I have also discussed some of the consequences of premature deindustrialization when there is a lack of viable alternatives.
References:
Browning, E. K., & Johnson, W. R. (1984). The trade-off between equality and efficiency. Journal of Political Economy, 92(2), 175-203.
Greenstein, J. (2019). Development without industrialization? Household well-being and premature deindustrialization. Journal of Economic Issues, 53(3), 612-633.
Okun, A. M. (2015). Equality and efficiency: The big tradeoff. Brookings Institution Press.
Ruef, M. (2020). The household as a source of labour for entrepreneurs: Evidence from New York City during industrialization. Strategic Entrepreneurship Journal, 14(1), 20-42.
Williams, D. M., & Homedes, N. (2001). The impact of the maquiladoras on health and health policy along the US-Mexico border. Journal of Public Health Policy, 22(3), 320-337.
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