Institutional Challenges in the Development of the World's First Worker-Owned Free Trade Zone

By Susman, Paul; Schneider, Geoffrey | Journal of Economic Issues, June 2008 | Go to article overview
Save to active project

Institutional Challenges in the Development of the World's First Worker-Owned Free Trade Zone


Susman, Paul, Schneider, Geoffrey, Journal of Economic Issues


The world's first worker-owned free trade zone, run by a small cooperative in Nicaragua created by a group of poor women, reveals a grass roots effort to appropriate advantages for themselves from within a neoliberal export-production strategy, one not known for empowering small producers. While a sustainable development strategy would rely on local production with integrated horizontal and vertical linkages, neoliberal policies are biased against small local producers. Here we examine the Women's Sewing Cooperative--COMAMNUVI (1)--which took years of sweat-equity, the assistance of a U.S.-based Non-Governmental Organization (NGO), and persistence to navigate a host of domestic and international institutional barriers to achieve modest export success. Although in Nicaragua, as well as worldwide, government rhetoric tends to support cooperatives as part of an anti-poverty commitment, the reality of institutional arrangements often disadvantages cooperatives and small enterprises while favoring multinational corporations (MNCs).

COMAMNUVI's successes and challenges can be understood through the lens of the theory of grounded comparative institutional advantage. (2) This theory provides a useful framework for examining the institutional matrix advantaging and disadvantaging specific types of economic activity in particular places. Below, the example of COMAMNUVI exposes some of the major institutions at play in the world of "free trade zones" affecting locally-based export activity.

Domestic Institutions

The theory of grounded comparative institutional advantage focuses on identifying the institutions that facilitate or inhibit particular types of production operations in a specific geographical location (Schneider 2007; Schneider and Susman 2008). Institutional arrangements favor some interests over others, for example, larger rather than smaller actors. This is the case in Nicaragua where the bias is evident in national rules governing free trade zone participation.

Nicaragua's policy of promoting free trade zone production excludes cooperatives by law. Pursuing a neoliberal agenda of trying to attract foreign capital and promote export production, Nicaragua provides tax exemptions and other incentives to firms managing the zones and establishing factories within them. (3) In 2007, free trade zones in Nicaragua employed about 75,000 workers in 85 foreign owned factories or "maquilas" (NSCAG 2007). These large operations are positioned to benefit from free trade zone status, while smaller cooperative enterprises, even when their principle production is export oriented, are usually unable to participate. (4) This is because the Nicaraguan Industrial Free Zones for Export Law (Decree No. 46-91) of 1991, limits participation in free trade zones to "a company organized as a mercantile partnership or corporation," (5) neither category fitting cooperatives.

While private enterprises allowed to operate in free trade zones are driven by profits, the law governing cooperatives explicitly identifies different goals targeting social-economic development. (6) In support of those goals, the government may provide some initial capitalization and protections not afforded other forms of enterprise, offering a small institutional advantage over other very small enterprises. Thus, the government reserves the name "cooperative" for enterprises serving a goal of social integration rather than just profit. (7)

Because as a cooperative they are excluded from free trade zone benefits, COMAMNUVI pursued a strategy of creating a wholly owned limited liability corporation, the Zona Franca Masili, operating under the commercial name of "Fair Trade Zone," a deliberate play on the implications of the name (Renk 2005, 50). Members of the cooperative have equal shares in the ownership of the "Fair Trade Zone." Effectively, its internal operations continue as a cooperative while its external relations (importing inputs and exporting commodities) operate as a private enterprise free trade zone.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Institutional Challenges in the Development of the World's First Worker-Owned Free Trade Zone
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?