¹ Much of the data in this paper are drawn from personal interviews with executives of the automobile industry and with government officials (in Nacional Financiera, Banco de México, and the Ministries of Finance and of Industry and Commerce) who were active in the bargaining during period under discussion. The article is concerned only with automobile policy; truck policy, however, raises similar considerations and in some cases was regulated in a similar way. A number of the issues discussed here will be more fully developed in a larger work now in progress.

² Kindleberger, Charles and Herrick, Bruce, Economic Development (3d ed., New York: McGraw-Hill 1977), 320.Google Scholar

³ Among recent literature on this subject, see Moran, Theodore H., “Multinational Corporations and Dependency: A Dialogue for Dependentistas and Non-Dependentistas,” International Organization, XXXII (Winter 1978), 79–100CrossRefGoogle Scholar; Moran, , Multinational Corporations and the Politics of Dependence: Copper in Chile (Princeton: Princeton University Press 1975)Google Scholar; Penrose, Edith T., The Large International Firm in Developing Countries: The International Petroleum Industry (London: Allen and Unwin 1968)Google Scholar; Vernon, Raymond, Sovereignty at Bay: The Multinational Spread of U.S. Enterprises (New York: Basic Books 1971)Google Scholar, chap. 3; Mikesell, Raymond F., ed., Foreign Investment in the Petroleum and Mineral Industries: Case Studies of Investor-Host Country Relations (Baltimore: Johns Hopkins Press 1971)Google Scholar, chap. 2. For one of the few case studies of a manufacturing industry, see Gereffi, Gary, “Drug Firms and Dependency in Mexico: The Case of the Steroid Hormone Industry,” International Organization, XXXII (Winter 1978), 237–86.CrossRefGoogle Scholar

⁴ Bachrach, Peter and Baratz, Morton, “The Two Faces of Power,” American Political Science Review, Vol. 56 (December 1562), 947–52.CrossRefGoogle Scholar

⁵ For a discussion of the concept of “interest” in analyses of power, and a critique of purely subjective conceptions, see Lukes, Steven, Power: A Radical View (London: Macmillan 1974).CrossRefGoogle Scholar

⁶ On the role that risk plays in the automobile industry, see White, Lawrence J., The Automobile Industry Since 1945 (Cambridge: Harvard University Press 1971), 7–9, 44–49.CrossRefGoogle Scholar

⁷ Jenkins, Rhys Owen, Dependent Industrialization in Latin America: The Automotive Industry in Argentina, Chile and Mexico (New York: Praeger 1977), 20.Google Scholar

⁸ The largest eight, in order, were M., G., Ford, , Chrysler, , Fiat, , Volkswagen, , Toyota, , Nissan, , and Renault, . “New Strategies for a World Auto Market,” Business Week, November 24, 1973, p. 38.Google Scholar

⁹ White (fn. 6). See also Menge, J. A., “Style Change Costs as a Market Weapon,” Quarterly Economic journal, Vol. 76 (November 1962), 632–47.CrossRefGoogle Scholar

¹⁰ Jenkins, (fn. 7), 49.Google Scholar

¹¹ For a fuller elaboration, see Bennett and Sharpe, “The State as Banker and as Entrepreneur: The Last Resort Character of the Mexican State's Economic Interventions, 1917–1970,” Comparative Politics, forthcoming.

¹² For a more detailed discussion, see ibid.

¹³ Details may be found in Hansen, Roger D., The Politics of Mexican Development (Baltimore: Johns Hopkins Press 1971)Google Scholar: Eckstein, Susan, Poverty of Revolution (Princeton: Princeton University Press 1977)Google Scholar; Glade, William P. Jr, and Anderson, Charles, The Political Economy of Mexico (Madison: University of Wisconsin Press 1968).Google Scholar

¹⁴ On Mexican policy toward foreign investment, see Wright, Harry K., Foreign Enterprise in Mexico (Chapel Hill: University of North Carolina Press 1971)Google Scholar; and Bennett, Douglas, Blachman, Morris, and Sharpe, Kenneth, “Mexico and Multinational Corporations: An Explanation of State Action,” in Grunwald, Joseph, ed., Latin America and World Economy: A Changing International Order (Beverly Hills: Sage Publications 1978).Google Scholar

¹⁵ Jenkins, (fn. 7), 39–40.Google Scholar

¹⁶ See the statement of López Mateos's Minister of Industry and Commerce, Lozano, Raúl Salinas, in Comercio Exterior, August 1964, pp. 547–48Google Scholar; and Lozano's, Salinas introduction to Tercero, Héctor Vázquez, Una década de politico sobre la industria automotriz (Mexico, D.F.: Editorial Tecnos 1975), 5–10.Google Scholar

In interviews, a number of officials of the Ministry of Commerce maintained that the balance of payments was not a primary concern (since domestic manufacture would create its own imports for machinery and raw materials). In their view, industrial growth and employment were the principal concerns.

¹⁷ Financiera, Nacional, Elementos para una politica de desarrollo de la fabricación de vehiculos automotrices en Mexico (Mexico, D.F.: Nacional Financiera 1960).Google Scholar

¹⁸ The concepts of industry structure and firm behavior are drawn from industrial organization theory: see Bain, Joe S., Industrial Organization (New York: Wiley 1959).Google Scholar The presumption underlying the theory is that structure affects firm behavior, and behavior in turn leads to performance (the type of contribution that an industry makes to the functioning of an economy) that can be judged against certain standards. I.O. theory, like economic theory more generally, considers ownership to be irrelevant, assuming a rational actor to be directing the firm. A different presumption has underlain the policies of the Mexican Government (among others) toward direct foreign investment: that the nationality of the ownership does make a difference in the firm's behavior, and thus in performance.

¹⁹ Knickerbocker, Frederick T., Oligopolistic Reaction and Multinational Enterprise (Boston: Harvard University School of Business Administration 1973), 1.Google Scholar Cf. Jenkins, (fn. 7), 40–42.Google Scholar For a discussion of oligopolistic reaction in another industry in Mexico, see Gereffi, Gary (fn. 3), 271–72.Google Scholar

²⁰ The same pattern of oligopolistic reaction is to be seen all over Latin America. When Brazil imposed its manufacturing requirements in 1956, 11 firms commenced manufacturing operations; when Argentina announced its policy in 1959, 22 firms made the necessary investments; in Chile, 20; in Venezuela, 16; in Peru, 13. Jenkins, (fn.7), 56.Google Scholar

²¹ It is worth mentioning that this requirement was made palatable by being considerably lower than the mandatory levels of local content that had been required by Brazil and Argentina a few years earlier, as well as certain attractive tax exemptions. On the latter, see Jenkins, (fn. 7), 54–55.Google Scholar Jenkins takes pains to argue, however, that these tax incentives themselves were not responsible for the large number of firms that were willing to commence manufacturing. With regard to the 60 percent of local content, it was the intention of the Mexican policy makers to start at this lower level in order to minimize the inflationary consequences of the transition to domestic manu facture (a low level of inflation being an important goal of the government's policy). With the industry's growth in size and efficiency, a gradual increase to higher levels was expected.

²² On these economies of scale, see White, (fn. 6), 38–53Google Scholar, and Jenkins, (fn. 7), 265–71.Google Scholar Even such otherwise staunch defenders of free trade as I.M.D. Little, Tibor Scitovsky, and Maurice Scott advocate the use of investment controls by developing countries in order to limit the number of firms in an industry with significant economies of scale; they single out the automobile industry as an example. Industry and Trade in Some Developing Countries: A Comparative Study (London: Oxford University Press 1970), 342.

Another proposal put forward in the Nacional Financiera Report—the establishment of a single, central body-stamping plant—was aimed at the same goal. The plant, to be developed by Altos Hornos, the state's steel firm, would make it possible for all the manufacturers to use the same body stamping presses, with only the stamping dies needing to be changed for each firm. If models were extended for several years each, these dies could be used to nearly full efficiency.

²³ On the sometimes dubious logic of equity participation as a means to control TNC behavior, see Bennett and Sharpe, “Controlling the Multinationals: The 111 Logic of Mexicanization,” in Lawrence V. Gould, Jr. and Harry Targ, eds., Global Dominance and Dependence: Readings in Theory and Research (Brunswick, Ohio: King's Court Communications, forthcoming).

²⁴ Restrictions on vertical integration would have two other effects as well: they would encourage economies of scale by avoiding the duplication of parts manufactured in each separate terminal firm, and they would allow better regulation of the requirement of 60 percent local content by making it more difficult for the terminal industry to manipulate percentages through transfer pricing.

²⁵ For the full text of the Decree, see Diario Oficial de la Federatión, August 25, 1962.

²⁶ For a recent employment of these concepts of potential and actual power in a general approach to international relations, see Keohane, Robert O. and Nye, Joseph S., Power and Interdependence: World Politics in Transition (Boston: Little, Brown 1977) 11, 53Google Scholar, and passim.

²⁷ Vaitsos, Constantine V., Intercounty Income Distribution and Transnational Enterprises (Oxford: Clarendon Press 1974), 119.Google Scholar

²⁸ It is important to note that this resource was different in kind from the other resources since it could not (as the other resources could) be used or withheld as a sanction. It was an infra-resource rather than an instrumental resource; it allowed other resources to be utilized to better advantage. On the notion of infra-resources, see Rogers, Mary F., “Instrumental and Infra-Resources: The Bases of Power,” American Journal of Sociology, Vol. 79 (May 1974), 1418–33.CrossRefGoogle Scholar

²⁹ This myopia arises partly from the strictly dyadic character of the standard pluralist conception of power (“A has power over B,” etc.). Such an approach abstracts the actors from all other significant relationships in which they are engaged, and thus seeks to locate potential power apart from these other significant relationships.

³⁰ Wallerstein, Immanuel, The Modern World System (New York: Academic Press 1974).Google Scholar

³¹ See, among others, Santos, Theotonio dos, “The Structure of Dependence,” American Economic Review, Vol. 60 (May 1970), 231–36Google Scholar; Cardoso, Fernando Henrique and Faletto, Enzo, Dependency and Development in Latin America (Berkeley: University of California Press 1979).Google Scholar

³² On these, see Keohane, and Nye, (fn. 26), 42–49 and 54–58.Google Scholar

³³ The phrase is from Talcott Parsons, whose suggestion that power be seen on the analogy of money leads to the erroneous supposition of the fungibility of power. See Parsons, , “On the Concept of Political Power,” in Sociological Theory and Modern Society (New York: Free Press 1967).Google Scholar For a corrective, see Baldwin, David, “Money and Power,” Journal of Politics, XXXIII (August 1971), 578–614.CrossRefGoogle Scholar

³⁴ Thus, for example, Robert Dahl: “The domain of an actor's influence consists of the other actors influenced by him. The scope of an actor's influence refers to the matters on which he can influence them. … Any statement about influence that does not clearly indicate the domain and scope it refers to verges on being meaningless.” Dahl, , Modern Political Analysis (3d ed.; Englewood Cliffs, N.J.: Prentice-Hall 1976), 33.Google Scholar

For a recent and thorough review of the power literature that pays particular attention to the questions of the fungibility and context dependency of power resources, see Baldwin, David, “Power Analysis and World Politics: New Trends versus Old Tendencies,” World Politics, XXXI (January 1979), 161–94.CrossRefGoogle Scholar

³⁵ It is noteworthy that the state-owned Diesel Nacional S.A. had already begun work on a medium truck of its own design. Some of its components were imported, some were manufactured under license, and a Detroit engineering firm had been consulted; but it was nonetheless a Mexican truck and proved to be a successful venture.

³⁶ In Keohane and Nye's terminology, Mexico was both “sensitive” and “vulnerable” to this power resource of the TNCs. “Sensitivity involves degrees of responsiveness within a policy framework” or context, and vulnerability refers to the “relative availability and costliness of the alternatives the various actors face.” Keohane, and Nye, (fn. 26), 12–13.Google Scholar

³⁷ Knickerbocker, (fn. 19), 197, 198.Google Scholar

³⁸ Wionczek, Miguel, El Nacionalismo y la Inversion Extranjera (Mexico, D.F.: Siglo XXI Editores 1967), 240–41.Google Scholar

³⁹ For such an alliance in the bargaining over copper concessions in Chile, see Moran, , Multinational Corporations and the Politics of Dependence: Copper in Chile (fn. 3), 190–97Google Scholar; for such an alliance in Venezuela in the bargaining over oil concessions, see Tugwell, Franklin, The Politics of Oil in Venezuela (Stanford: Stanford University Press 1975).Google Scholar For a general discussion of the conditions under which such alliance between TNCs and the national bourgeoisie may form, see Moran, in International Organization (fn. 3), 93–95.Google Scholar

⁴⁰ For one discussion of these relationships that especially concerns European automobile firms, see Wells, Louis T., “Automobiles,” in Vernon, Raymond, ed., Big Business and the State (Cambridge: Harvard University Press 1974).Google Scholar For a discussion that illuminates certain aspects of the relationship of the U.S. and Japanese Governments toward their automobile industries, see Duncan, William Chandler, U.S.-Japan Automobile Diplomacy (Cambridge: Ballinger Publishing Co. 1973).Google Scholar

⁴¹ Keohane, and Nye, (fn. 26), 11.Google Scholar Cf. Moran, , Multinational Corporations and the Politics of Dependence (fn. 3), 169–215.Google Scholar

⁴² It does seem, however, that they did not fully appreciate how much the pattern of oligopolistic competition strengthened their hand, nor how zealously the firms would press their cases in their eagerness to be included.

⁴³ A well-publicized visit by U.S. Ambassador Thomas Mann to the plant of Fábricas Auto-Mex in August 1961 made it clear that the United States was interested in the treatment of this firm (which was majority Mexican-owned), as well as of Ford and G.M.'s wholly U.S.-owned subsidiaries.

⁴⁴ Another case of U.S. Government intervention on behalf of Ford, G.M., and Chrysler over somewhat similar issues is documented in Duncan (fn. 40).

⁴⁵ An application from a wholly Mexican-owned venture to manufacture Datsuns had been turned down during the normal period of application, though the approval of Reo allowed the manufacture of one Japanese make (Toyota). Since Reo failed during the first year, however, no Japanese makes were initially included in the Mexican market.

⁴⁶ Lic. Lozano, Raúl Salinas, Memoria de Labores, 1963 (Mexico, D.F.: Secretaria de Industrie y Comercio 1963), 136–37.Google Scholar

⁴⁷ Comercio Exterior, May 1961, p. 287.

⁴⁸ Comercio Exterior, March 1963, p. 167.

⁴⁹ In later bargaining, some of the terminal firms secured approval for more vertical integration. A number of firms now have approval to cast their own engine blocks, Volkswagen is permitted to make its own body stampings, and so forth.

⁵⁰ Cf. the discussion of divisions within the Mexican state as weakening its bargaining position vis-à-vis foreign drug companies, in Gereffi, (fn. 3), 279–84.Google Scholar Organizational constraints within the TNCs themselves, while beyond the scope of this paper, are also important to a full analysis of the transformation of potential into actual power. See Gereffi, ibid. For a broad general discussion, see also Chandler, Alfred D. Jr, Strategy and Structure: Chapters in the History of the American Industrial Enterprise (Cambridge: M.I.T. Press 1962).Google Scholar

⁵¹ Parallel to this lack of coordination was the failure of Industry and Commerce to make use of the state's own automobile firm, Diesel Nacional, nominal control over which lay with yet a third ministry, National Properties. DINA could have been a valuable source of technical and financial information about automobile manufacturing; it could have been allotted a place in the industry which would have made it a tool of industrial policy (a competitive check on the other firms). DINA's earlier troubles, however, hardly inspired confidence.

⁵² Smith, Peter, “Does Mexico Have a Power Elite?” in Weinert, Richard S. and Reyna, José Luis, eds., Authoritarianism in Mexico (Philadelphia: ISHI Publications 1977).Google Scholar

⁵³ On this argument, see Moran, , Multinational Corporations and the Politics of Dependence (fn. 3), 157–62.Google Scholar