Beginning in the 1990’s El Paso’s leaders failed to realize that El Paso stood at the frontlines of the world’s largest economic block. This failure has led to El Paso’s chronic high property taxes and high levels of poverty. The North American Free Trade Agreement (NAFTA) is often blamed for El Paso’s lost manufacturing economy. But the loss of manufacturing jobs in El Paso began some three decades before when Mexican officials responded to the U.S. government ending the Bracero Program on December 31, 1964. Several factors led to the ending of the guest worker program that allowed Mexican workers to work American fields, including agricultural mechanization, pressure from labor groups and complaints that the U.S. was relying too much on migrant labor.
Facing returning laborers to a country with little to offer in work, and a border region heavily dependent on the American economy, in 1961 the Mexican government launched the Programa Nacional Fronterizo (PRONAF) to help stimulate Mexican product sales to American tourists in the border region. The PRONAF program generated a 48% growth in tourist spending to the border within the first five years. But it was not enough to address rising unemployment on the border, so the Mexican government extended the PRONAF concept into the Border Industrialization Program (BIP) in 1965.
The Border Industrialization Program was created to help industrialize the Mexican border region with the United States by using American capital to build manufacturing infrastructure in México.
Nicknamed “maquilas,” after the Arabic word, makila, used to refer to the part of the grain a miller kept for milling grain as payment for milling the customer’s grain, a maquila under BIP would be allowed to import machinery for manufacturing duty free as long as the final product was exported out of México never entering the domestic market to compete with Mexican products. That was the first stipulation. The second was that the manufacturing of products required 100% Mexican labor.
For México BIP solved two problems at once, help industrialize the Mexican economy and helping to curtail rising unemployment, especially along the border. Maquilas were also known as Twin Plants, “in bonds” and assembly plants. Initially restricted to within 20 kilometers (about 12 miles) from the Mexican border, the first maquiladoras were opened in Cd. Juárez, Matamoros, Nuevo Laredo on the Texas border and Tijuana on the California border.
By 1969, there were over 90 companies operating under BIP in México. By the mid 1970’s, México had relaxed where the maquiladoras could be established only restricting Monterrey and Mexico City as cities that would not allow them because they already had strong local economies. Cd. Juárez had the most workers working in maquiladoras by far in 1990, with 25.1% of the maquila workers in Juárez. The closest maquila city to Cd. Juárez was Matamoros with 7.4% of the maquiladora workforce. Although Juárez’s share of the maquila workforce would decline to 17.9% in 2000, by 2006 it had rebounded to 20.6% with Reynosa at number two with 8.3%.
Today, with around 300,000 jobs in the maquila sector, Cd. Juárez is “one of the most important manufacturing hubs” in the country.
From the beginning, Cd. Juárez took advantage of cross border trade while El Paso bemoaned the pressure from the rise in global trade.
The BIP was followed by the North American Free Trade Agreement (NAFTA), today known as the United States-Mexico-Canada Agreement (USMCA). NAFTA took effect in 1994, and it opened a previously underdeveloped apparel and textile industry in México. Prior to NAFTA, maquilas in México were limited to cutting fabric to be exported to the US to be finished into apparel. Now the maquilas expanded into finishing apparels making them the top three exports, along with automotive and electronics in Juárez.
NAFTA is often blamed for the shift of manufacturing out of El Paso into its sister city, Cd. Juárez. But when Donald Trump threatened NAFTA during his first administration, El Paso leaders were quick to defend NAFTA.
When Levi Strauss closed its doors in 2002, the general belief was that NAFTA had taken the garment jobs out of the country. But the truth was that NAFTA “worked great for Mexico and great for El Paso,” former owner of Action West Jeans, Dan Shapiro, told KFOX in 2016.
What Shapiro forgot to include was that he adopted his business to the new global economy and he and other El Pasoans did well, but at the expense of one of the highest tax rates in Texas. The reason was that El Paso’s leaders did not understand the difference between a high-value investment versus a low value one. This problem continues today with city incentives trying to lure outside businesses instead of encouraging local entrepreneurs to create in El Paso.
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El Paso’s failure in recognizing the potential NAFTA offered to El Paso’s future was creating the faulty narrative that the manufacturing shift towards México had started with NAFTA, when in fact it started with BIP in the 1970’s. The case in point was El Paso’s largest job sector – the apparel industry. Job losses were part of NAFTA, but the job losses had started much earlier as demonstrated by the failure of El Paso’s largest clothing manufacturer that had a national impact on the clothing industry from its base in El Paso, Farah Manufacturing. Almost 30% of El Paso’s jobs were jobs at Farah Manufacturing in 1970.
The end of Farah in 1995 was not because of NAFTA, but, rather, it started when El Pasoans working at the company demanded a labor union to protect their interests. The fight for the union began in 1970 and by the time it was settled in mid-1974, the damage to Farah and other apparel manufacturers across America had been done. Labor unions across the country learned from the Farah labor strike that they could win their labor fights using the same tactics that the Farah strikers employed. These included national boycotts and involving churches in their labor fights. This led to higher manufacturing costs, especially in apparel.
What El Paso officials failed to understand about BIP, NAFTA, the rising global economy and labor inequality was that the economic status quo would not survive. Like everything, economies evolve out of the need to meet demand at low prices.
Like Willie Farah, El Paso’s leadership fought against change hoping to keep the status quo to the detriment of El Paso. To understand how El Paso missed out on the largest global marketplace it is useful to understand what El Paso’s leaders could have done differently, step-by-step.
A Step-By-Step Explanation of What Could El Paso’s Leaders Could Have Done Differently In the 1990’s For El Paso’s Economy
Let’s start with the obvious question, was it possible to create public policy for the city under the new NAFTA regime? The answer is unequivocally, yes. Here is why.
El Paso’s economy grew because of NAFTA, notwithstanding the doom and gloom from El Paso’s failed leadership. El Paso’s economy transformed away from apparel manufacturing towards logistics, especially cross-border and warehousing. But no public policy was created to encourage high-value investments like research and development, and engineering. Instead, public policy centered around economic incentives that incentivize low job creators and low-value investments like data centers most recently and warehouses that add little value to the tax base of El Paso.
El Paso’s leaders could have embarked on economic development and public policies that captured long-term gains. They did not.
High-paying jobs were lost to operations across the border not because of lower wages but because El Paso’s leadership failed to aggressively invest in workforce development that incentivized global trade skills instead of believing that a college degree was more valuable than the skills needed for a global economy. Adding to the educational failures was a competing and fractured educational environment that ended up creating a university feeder, the Community College, whose job it was to prepare students for university because the local school districts had failed them.
Rather than focus on teaching skills, like logistics and information technology, the Community College prepared students for UTEP so that the leaders in El Paso could proudly point to graduation rates as proof of success. The problem was that UTEP’s degrees did not address the need for logistics operators or information technology, leading newly minted degree holders to look outside of El Paso for jobs for their degrees or settle for jobs unrelated to what they learned at UTEP.
Another example of the failed educational policies and economic development is the belief that building a medical campus, graduating nurses and other medical professionals, instead of workers for the global trade somehow solves the local economic problems. There is a much larger need for El Paso’s economy than publicly supported medical jobs. Jobs like engineers information technology professionals and trade logistics experts are conducive towards building up the local economy through private investment than government funded jobs in medical research. Government jobs do not translate into growing the local tax base because they do not pay taxes.
The first important step was for the 1990’s leaders was to invest aggressively in education that made sense for El Paso, like manufacturing engineering and technology. Instead of targeting federal and state funding to break language barriers, displaced worker funding should have provided marketable technical skills. Instead of uplifting the local workforce, El Paso’s leaders chose to import technical expertise by offering incentives to companies wanting to relocate to the city who brought their technical expertise with them.
To this day El Paso’s leaders proclaim that the city must invest in quality of life to attract companies to move to El Paso, instead of incentivizing local entrepreneurs to build local businesses by helping them train the local workforces to meet their needs.
The next step (Step 2) was to work closer with Juárez businesses instead of eyeing them as competitors. Ignoring cross-border collaboration led Juárez to becoming the manufacturing hub – building up its own local workforce with expertise while leaving El Paso as a distribution center for the goods making their way to the rest of the United States.
El Paso’s leaders could have aligned UTEP and the Tec de Juárez (Instituto Tecnológico de Ciudad Juárez) to create collaborative expertise on both sides of the border. On the private side of things, El Paso leaders could have encouraged joint research and development innovation centers collaborating on both sides of the border. And create a joint economic development council to encourage foreign investment in the region to further develop cross-border infrastructure.
Too much effort and investment has been spent over the years attempting to develop medical clusters around solving illnesses instead of encouraging a medical cluster engineering medical tools that can be manufactured in Cd. Juárez while being engineered and marketed from El Paso.
Step three should have been modernizing border infrastructure to allow greater flexibility managing cross border trade. Problems like congestion and pollution would be easier to address today with a modern border infrastructure. Instead, El Pasoans will now be dealing with the planned expansion of I-10 in the coming years.
El Paso’s leaders could have created a free-trade clearance center where customs could process imports and exports levering El Paso as the central processing import center instead of being simply a pass-through for trade heading out of the city. A center like this would have helped control truck traffic by forcing them through a traffic funnel away from the city center.
The “low-wage town” mentality brings us to step four of what city officials could have done differently in the 1990’s to position El Paso as the center for the largest global trade in the world. NAFTA created many new low-wage jobs like warehousing and trucking. Instead of incentivizing local small business owners to develop commerce that they could sell to Juárez consumers, El Paso’s leadership allowed the city to become just a facilitator of imports.
Rounding out the five things El Paso’s leaders could have embarked upon in the 1990’s is developing a regional approach rather than the initial fragmented approach of El Paso doing its thing while Cd. Juárez did its thing.
It wasn’t until, well into the 2010’s, 20 years too late, that El Paso’s leaders started to formulate an approach to brand El Paso and Cd. Juárez as a single metro economy to attract and encourage business investments on both sides of the border.
El Paso and Cd. Juárez today function as one labor market and supply chain hub, but marketing and governance remain two separate things.
The single regional metroplex, or Borderplex should have begun in the 1990’s with a little foresight and the willingness to work across borders for the common good. Even today, with hindsight and a Borderplex initiative in place, now including Las Cruces, Santa Teresa and White Sands, the cheers of success are about the largest data center coming to Santa Teresa offering little long-term job offerings and more stress on dwindling water supplies and electricity.
In summary had El Paso’s leaders in the 1990’s viewed NAFTA as a long-term transformation project and not just trade policy, and had they invested in skills, technology, and infrastructure early on, along with building deep institutional ties with Juárez – El Paso could have evolved into a binational innovation capital rather than a low-wage logistics hub for global trade.
The lessons identified here are both a cautionary example of public policy failures, and the blueprint for what El Paso’s leaders can do moving forward to solve the chronic failure of El Paso’s economy. El Paso’s economic failures are because El Paso allowed many low-wage service and logistics jobs to replace higher-paying manufacturing jobs that shifted to México. Many of the challenges and proposed solutions are as relevant today as they were in the 1990’s, albeit El Paso now faces the difficult task of making up for its failures in economic development over the last 30 years.