People as products: immigration, remittances and development

The question is posed: In this era of globalization, should people be allowed to move across borders as freely as products?

Philippe Legrain, author of Immigrants: Your Country Needs Them, in an interview with the Freakonomics blog in the New York Times:

“When it comes to the domestic economy, politicians and policymakers are forever urging people to be more mobile, and to move to where the jobs are. But if it is a good thing for people to move from Kentucky to California in search of a better job, why is it so terrible for people to move from Mexico to the U.S. to work?”

…

“From a global perspective, freer migration could bring huge economic gains. When workers from poor countries move to rich ones, they can make use of the advanced economies’ superior capital, technologies, and institutions, making these economies much more productive. Economists calculate that removing immigration controls could more than double the size of the world economy. Even a small relaxation of immigration controls would yield disproportionately big gains.”

Immigration as development program
Most development aid is only effective through some sort of divine intervention, or the perfect alignment of stars. That is, goals and actions must be completely harmonized amongst the development agency, the host government and local people. Most will agree that too many things can go wrong for aid to be effective in the long term.

Immigration’s simple aid package is remittances, the transfer of money home through informal means or with a carrier like Western Union. According to a study by the International Fund for Agriculture Development, 150 million immigrants sent more than $300 billion in 2006, which is three times the amount of the entire international aid budget.

The driving force of these remittances is usually smallish amounts, about $100 to $300, but enough to greatly assist immigrants’ families, “a lifeline that lifts them out of poverty,” according to the study’s authors. At least 80 to 90 cents of every dollar sent home is spent on basic needs, keeping many families above water. The other 10 to 20 cents is spent on various formal and informal savings and investments.

The Remittance Sweepstakes: Winners in Africa
Country	Amount in $ millions	Percent of GDP
Morocco	6,400	11.2
Congo Brazzaville	423	7.4
Mozambique	565	7.4
Rwanda	642	6.9
Tunisia	1559	5.1

Sub-Saharan Africa, which counts more than 30 million people in its Diaspora, received $21.7 billion in 2006. That amount represents roughly four percent of the continent’s GDP and four percent of its exports. Africa’s migration is predominately intraregional, especially in West Africa, whose countries share a cohesive culture and a common language and currency. (As much as 14 percent of all of West Africa’s remittances originate in Cote d’Ivoire.) Yet, “significant” out migration exists to countries in Europe, especially the former colonial powers of England and France. The Netherlands and Italy also boast large African populations.

A large portion of the funds received in West and Southern Africa goes to rural areas. At least two-thirds of immigrants living and working in Ghana send money home to rural areas. Here is a list of the Remittance Sweepstakes winners in West Africa: Gambia, where immigrants sent home $87 million, the equivalent of 17 percent of GDP; Mali received $739 million, 12.5 percent of GDP; and, Burkina Faso's Émigrés sent back $507 million, about 8.2 percent of its GDP.

But problems do exist. In Africa, 70 percent of all transfers are handled by a single operator. Service charges for remitting declined over the past decade, but still remains a hurdle. Part of the problem is financial institutions are now obliged to better monitor their transactions to be more vigilant against funding terror groups. This added scrutiny comes at a cost.

Also, even with banks maintaining such a large market share in Africa, these institutions don’t reach out to the migrants to allow them to open accounts or gain credit. Other than granting more access to the banking system, the authors noted that increasing financial literacy may help unlock the development potential of remittance flows.

Why do people leave?
If people in rich countries want to stop immigrants from entering their lands, we must ask why people come in the first place. The poor of the world live mostly in the world’s poorest countries, places not only plagued by staggering unemployment, but a mushrooming population. Employers from rich countries, however, constantly hunt for workers to fill low-skilled jobs and many developed nations (at least in Europe) are fighting against an aging population. For example, demographics show that the Italian workforce is expected to shrink by one-third by 2050, while in Egypt the workforce will double in that time.

There is more. Today, at least “five irresistible forces” are at work applying pressure for the increased mobility of people across national boundaries. According to the economist Lant Pritchett, those five include:

• The Wage Gap. At the end the nineteenth century, the difference between poor nations and rich nations hovered around 2 to 1 and 4 to 1. Today, that number reads 10 to 1.
• Differing demographic futures. Because these wage gaps are explained by address more than anything else, the future of people born in rich countries remains very bright and decidedly less difficult than those originating from a poor country.
• The globalization of everything but labor. The mobility of labor is small compared to the flows across national borders of goods, capital and communication.
• The rise of employment in low-skill, hard-core nontradables. Some jobs cannot be outsourced, and health aides, janitors, fast food workers are some of them. Because of aging populations, the rich world will need more of these workers.
• Lagging growth in “ghost” countries. Think of some poor countries as the converse of the Great Plains of the United States. In 1930, more than a million people lived in the sandy flats of America. By 1990, its absolute population fell by 27 percent and created “ghost towns” populated by the very old or very young. However, per capita income remained steady with the rest of the country. However, in Zambia, the population tripled between the mid-1960s and 2000 while the per capita income feel by one-third.

Pritchett proposes a comprehensive guest worker program to alleviate these irresistible forces. Here’s the fix:

• Let the host nation choose who comes. Don’t create general multilateral agreements, but bilateral agreements between two or a small group of countries. This may help stem the argument against culture clash or the dissolution of culture.
• Workers stay short term. In a New York Times Magazine story, Pritchett claimed workers should stay three to five years and not be offered a path to citizenship.
• Workers will only be employed in specific fields with labor shortages.
• The host country must not only enhance the development of the sending country, but work with this country to enforce labor laws to ward off people becoming prey to employers and traffickers.

It’s a radical plan, by most thinking. In that New York Times Magazine profile, writer Jason De Parle makes the argument that it can be described in terms similar to Saudi Arabia’s guest-worker program where laborers arrive from poor nations, remain for a time in the Kingdom, yet exist permanently separate from mainstream Saudi society. However, Michael Clemens points out in a blog post for the Center for Global Development that Pritchett’s plan doesn’t resemble Saudi Arabia so much, but the contemporary United States. During the 1990s when 350,000 unauthorized workers annually entered the country, “America took in three million low-skill workers with no citizen rights and, thanks to the recent failure of the immigration reform bill, little prospect of such rights.”

Opponents have their say
From the U.S perspective, here is what economist George Borjas thinks about a guest worker program.

“Let me ask a few simple questions that proponents of guest workers programs should answer in the context of U.S. laws and norms.”

I quote:

• What guarantee is there that the guest workers will in fact be temporary workers? How can such a guarantee be enforced in the United States?
• What will happen when the judicial system puts its fingerprint on the program? All it takes is for one activist judge to invent some right out of thin air, and--presto--it will be hard to repatriate many more guest workers.
• Doesn't a guest worker at the end of the visa term have incentives to become an illegal immigrant? How are we going to prevent that? How are we going to catch them?
• Why would one want to start a program that essentially creates a huge class of disenfranchised workers in the labor market? Isn't there a real danger that the exploitation of poor foreign workers--the new crop of second-class citizens--becomes a trademark of that segment of the labor market?
• Surely a guest worker program of the magnitude contemplated by Bush-Kennedy-McCain must have some impact on the relative wage of competing workers. I realize that more than a few economists are willing to forget the law of demand they teach in Econ 1 when it comes to immigration.
  

The kicker: “But think of it another way: why would employers spend so much lobbying for guest workers if the program didn't benefit them?”