Capital Beyond Borders: States and Firms in the Auto Industry, 1960-1994

Journal of Interamerican Studies and World Affairs, Fall 1999 by Arbix, Glauco

The reality of multinational leverage over states affects all the Latin American countries that seek the investments of multinational auto firms. This situation contrasts sharply with that of the 1950s and 1960s, when the first major wave of transnational automotive companies flocked to Mexico, Brazil, and Argentina. That first wave of investment relied on much more than the construction of factories and the creation of industrial employment; it involved the wholesale restructuring of industrial relations. It provided the first real impetus for union movements in industry to grow sophisticated.

The expansion of the automobile industry in Latin America required significant commitments of capital and technology and profound changes in the role of the state, which was charged with nothing less than creating a new model of capital accumulation. Back then, developmentalist states negotiated directly with the multinationals. The central state played the role of chief articulator of how the firms' investments would affect the economy, but the main goal was to promote the overall development of the domestic industrial market.

The current situation is very different. In 1995, the Brazilian government prepared a series of incentives for foreign automobile companies. Brazil sought to beat out its rivals in Asia, particularly China; but also its neighbors, particularly Argentina, which in 1991 succeeded in using incentives to expand its automaking sector. Argentina's actions motivated Brazil to follow suit, but under the Mercosur trading regime, multinationals in Argentina were also motivated to provide and import parts produced in the Brazilian market.

The administration of Fernando Henrique Cardoso paid more attention after the Mexican peso crisis affected the Southern Cone economies in 1995, and when Brazil began running large current-account deficits spurred by automobile imports that year. In December 1995, Cardoso launched a protective regime for the automakers that was sharply distinct from the way the autoparts companies were left open to foreign competition. The protective regime, combined with incentives for export within the Mercosur block, stimulated commercial and industrial integration within the multinationals based in Brazil and Argentina. As part of the downsizing and simplification of their own production, the American, European, and Asian multinationals proceeded to allocate a large segment of their global commitments to Brazil.

In Brazil itself, competition between state and municipal governments for multinational investment expanded to an unprecedented degree. Fifteen new factories are to be built through the year 2000, with investments totaling $20 billion. Nine Brazilian states and more than 100 municipal governments, some separated by as many as 2,000 kilometers of distance, have produced cooperative programs to attract the auto multinationals.

Without a doubt, Capital Beyond Borders contributes to the scholarship on processes like these. Capital mobility remains the most important variable in the bargaining between states and firms that underlies the restructuring of investment patterns in Latin America. In the context of global shifts in the leverage that international investors have over states and the erosion of industrial policy and welfare states, Thomas's book sheds light on the dangerous relations between states and multinationals. It asks a timely question: who is regulating whom?