Democracy Lab

The Migrant Money Machine

The developed world could make a big difference to the global economy simply by helping migrants to do what comes naturally: send money home.

Everybody knows that the tens of millions of migrants from developing countries (documented and undocumented) who work in Europe, North America and the Persian Gulf send home a lot of money. What most don't know, though, is that the sums are triple the development aid budgets of the rich donor countries, and growing rapidly. Nor are many people aware that remittances have morphed from an afterthought to a key component in strategies for transforming poor countries into successful "emerging market" economies. Indeed, it's becoming clear that Lant Pritchett, a brand-name economist now at the Center for Global Development, was ahead of his time in arguing that the best thing rich countries could do for the developing world is to let their migrants do the heavy lifting.

Start with the numbers. Remittances to developing countries, which were below $100 billion as recently as 2002, reached $372 billion in 2011. Not surprisingly, India and China topped the list of recipients with $64 billion and $62 billion respectively, followed by Mexico ($24 billion), the Philippines ($23 billion), Egypt ($14 billion), Pakistan ($12 billion), Bangladesh ($12 billion) and Nigeria ($11 billion).

What may surprise, though, is that the impact on these large countries with relatively large economies was dwarfed by consequences for a dozen small countries that are effectively remnants of colonial empires or economic satellites of the oil states. Think Tajikistan, Moldova and the Kyrgyz Republic, ex-Soviet republics that each receive more than one-fifth of their incomes from migrants. Or Lesotho (29 percent of GDP), which is surrounded on all sides by South Africa. Or Lebanon, which derives 20 percent of its income abroad, mostly from the Gulf. There's a three-way tie for most dependent Latin American country, by the way, with El Salvador, Haiti, and Honduras each pulling in about 15 percent of their income from migrants living in the United States.

The flows are volatile. Changes in oil prices affect the gush of money sent from Russia and the Gulf, for example, while the global recession (in particular, the collapse of the construction industry) took a hefty chunk out of remittances from Europe and the United States. But that hit was cushioned in part by the strength of the dollar and euro through the recession, which meant the money that was sent paid more bills in local currency back home. Note, too that the average rate of growth in remittances is so rapid that the cycles are overwhelmed by the trend.

Of course, the primary beneficiaries are the migrants' families. But the long-term effect on economic growth is considerable, and for a variety of reasons. China had a big head start in this regard. Overseas Chinese provided huge amounts of capital -- and more important, the mix of technological and managerial knowhow and experience in international trade -- to power China's takeoff in the 1980s. 

 

India is far behind, in part because a large percentage of overseas Indians are semi-skilled workers in the Gulf. Ironically, India's well-developed financial markets have also played a role: That has made it possible for affluent overseas Indians to invest in stocks and bonds back home rather than in new businesses. But there's little doubt that the Indian-American high-tech connection is beginning to pay off, both in terms of direct investment and in the ease of technology transfer. Though hard to quantify, the success of India's North American diaspora clearly offers aid and comfort to interests back home that are fighting to open the country to foreign business -- an uphill struggle in a country long dominated by politicians and bureaucrats who have much to lose in a more competitive, less regulated economy.

Savings rates in Asia are very high -- embarrassingly high in the case of China, which saves more than it can easily invest at home and thus depends on big trade surpluses to sustain growth in output and employment. But Latin America, where domestic savings rates are anemic, is an entirely different story. Today, migrant remittances are mostly fueling consumption -- poor people need to eat more than they need to save. But that could change as Latinos in the United States climb the economic ladder. Their money could supplement the availability of capital back home, especially for small business start-ups from Mexico to Brazil that are now largely shut out of the credit markets.

Actually, the poorest countries are starving for capital for public infrastructure as well as for private business. Hence the new interest in "diaspora bonds" -- government-issued debt denominated in local currencies that is marketed to expats to finance specific projects. There's no magic here: Migrants know as well as other potential investors (maybe better) that such bonds carry the risk of default as well as the risk that currency depreciation will eat into their principal. Still, the bonds make sense, at least in theory, both because they appeal to migrants' patriotism and because currency risk matters less to migrants since their relatives could always use the local cash.

Thus far, diaspora bonds have worked best where special means of raising capital are needed least (see India and Israel). But the World Bank is pressing the issue, and there's hope the bond approach could make a difference, in particular, in sub-Saharan Africa.

What we know for certain, though, is that more remittances are better than less -- and that Pritchett's exhortation to let migrants help their home countries by doing the jobs nobody wants in rich countries was on the mark. Migration policy is not about to be liberalized in the United States or Europe -- indeed, net migration could well remain negative, as chronic unemployment (not to mention xenophobia) dogs the developed world. Even Saudi Arabia, the second-largest national source of remittances after the United States, is making serious noises about forcing employers to substitute unproductive Saudi labor for Asian and Arab workers.

But there is one, widely ignored way to increase the sums going back to developing countries. The great bulk of remittances are sent home in sums of a few hundred dollars. And the costs of sending the cash is startlingly high -- as much as 30 percent in some remittance "corridors." In part, that's because the real cost of wiring $20,000 across borders is hardly different than wiring $200. However, it's also a function of competition, or lack thereof.

The World Bank maintains a website in eight languages in which the fees charged by every major financial institution in every international cash corridor are posted. Unfortunately, though, the people who need the information the most are also the people least likely to use websites, and also the least likely to have the time to cross a city to find a cheaper service.

Governments generally aren't inclined to lean on financial providers to offer more competitive service; this is a large and profitable business that knows how to push back. But it may be an arena in which NGOs could make a difference, publicizing abuses and praising do-gooders in cities and neighborhoods where immigrants have economic power by virtue of numbers. Paring the average fee from around eight percent by a single percentage point would mean an extra $3 billion for recipient countries -- roughly the aid budgets of New Zealand, Austria, and Finland combined

Screen Grab of Remit 2 India Ad

Argument

What the Bloody Hell Is Wrong with You Americans?

Why you should be embarrassed by the fascination with Kate Middleton's womb.

LONDON — "We know no spectacle so ridiculous," opined the great nineteenth-century historian, Thomas Babington Macauley, "as the British public in one of its periodic fits of morality." But for sheer ridiculousness, few spectacles are quite so grimly moronic as the American media plunging overboard in one of its periodic obsessions with the British House of Windsor. The news -- to use the term in its most limited sense -- that the Duke and Duchess of Cambridge expect their first child to arrive on this Earth sometime next summer is sending a good part of the American press into a familiar frenzy of twittering, fluttering excitement.

There will be a baby! Not just any baby -- a royal baby! Could anything be finer or more deserve front-page coverage? Were I an American, I suspect I should find this contemptible; as a Briton, I make do with considering it laughable.

Mark Twain was surely right. "Unquestionably the person that can get lowest down in cringing before royalty and nobility, and can get most satisfaction out of crawling on his belly before them, is an American. Not all Americans, but when an American does it he makes competition impossible." Consider, too, that Twain never had the pleasure of witnessing American morning television and its ridiculous habit of fawning over, successively, Prince William's engagement, his marriage to Kate Middleton and now, the happy news that the next stage of the succession is on the point of being secured.

I recall experiencing some of this first-hand. When Queen Elizabeth enjoyed a state visit to Washington in the summer of 2007, you should have seen the palaver. I lived in Washington in those days and was mildly taken aback by all the upper-crust hysteria. My, how members of the imperial capital's elite scrambled for the merest glimpse of royal flesh. At a garden party hosted by the British embassy, members of Congress and what remains of (or passes for) Georgetown society could have been mistaken for teenage girls queuing for tickets to see One Direction. (Tough-hearted British journalists, of course, did their best to hide their amusement at this spectacle behind a mask of laconic detachment.) Needless to say, this didn't happen when other heads-of-state came to town.

The American fascination with the British royals is hardly new, even if it has been magnified and encouraged by a culture ever more in thrall to celebrity and an age in which trivia and gossip are privileged by carrying around Google on your phone. Much of the rot set in with Princess Diana, whose "fairytale" wedding to Prince Charles descended into a gruesome -- if compelling -- soap opera.

Diana's death was, if you will, as tragic as it was useful. She died before her story became too tawdry. Her demise allowed attention to pass to the next generation and, befitting his status in the line of succession, to Prince William in particular. Here was a photogenic and responsible royal, whose rise could redeem the family's tarnished brand, offering fresh hope and, above all, a fresh storyline.

His wedding in the summer of 2011 to Kate Middleton -- a commoner, no less! What a fairytale! -- was an event crying out for mawkish excess. American television, ever ready on this front, fell upon the challenge in splendid style. The morning shows decamped to London for a week of newlywed overkill. As purveyors of mindless tommyrot at the best of times, "Good Morning America" was in its element as it offered Americans the opportunity to gawk at all the princely finery, pomp, and flummery on display in Ye Olde London Town.

A writer for Entertainment Weekly dryly reported that "NBC had a graphic in the upper right corner of its screen: "‘Countdown to the Kiss.' The network didn't realize it should have made that plural. When the freshly spliced William and Kate went in for a second smooch on the balcony of Buckingham Palace, I think I heard Barbara Walters gasp on ABC."

A gasp! An honest-to-goodness gasp! Some people are too easily impressed. And so it continues. The Daily Beast -- helmed by the indefatigable British import Tina Brown -- publishes a blog titled "The Royalist," which, "updated several times daily" is deemed "essential eyeballing for fans of the world's most famous family." There is something ghastly about this.

Ghastly but not, alas, un-American. There is no novelty in observing that much of American culture thirsts for dynasties and aristocracy to an extent and with a prominence that is sometimes hard to find in the United Kingdom. To cite Twain again: "We have to be despised by somebody whom we regard as above us or we are not happy; we have to have somebody to worship and envy or we cannot be content. In America we manifest this in all the ancient and customary ways. In public we scoff at titles and hereditary privilege but privately we hanker after them, and when we get a chance we buy them for cash and a daughter."

Can anyone who has spent any time in Washington doubt the abundant good sense of this? To say nothing of the celebrity of royalty, the drawbacks of an elected head of state have long since become apparent. The imperial presidency has been a sorry fact of the American existence for decades now. How can it be otherwise when the mere mortal elected to the presidency is treated -- at least in terms of the expectations with which the office is lumbered -- as some kind of priest-king?

Not that it ends there in Washington. Congress has become a family business in which promotion is based on genes more than ability. The British House of Lords may be an anachronism, but at least it recognizes inherited power as, well, an anachronism. From the Kennedys to the Pauls via the Udalls, the Murkowskis, the Jacksons, and many others, political privilege in modern America often seems to have become a matter of inheritance.

More broadly, the elites are, in some respect, more completely isolated from the American mainstream than at any point in the nation's history. Witness, for example, the widespread sense on Wall Street that President Barack Obama was implacably hostile to America's super-rich. Witness too how much more ink is spilled debating affirmative action than contemplating legacy admissions to America's greatest universities. Anything that inconveniences the elite is, apparently, "class warfare" (albeit of a kind real class warriors might struggle to recognize).

The divide between the privileged and the rest has become disturbingly wide. Whatever its other strengths, the rise of the "meritocracy" also fosters the writing of rules and norms that sustain and protect those already happily advantaged. It is a form of regulatory capture that, amid much else, downplays the impact of dumb or otherwise unearned luck. As writers such as Ross Douthat and David Brooks have argued, if elites convince themselves their advantages are the product of nothing more than hard work, one might not expect them to be animated by an excess of old-fashioned, aristocratic noblesse oblige. 

One need not be a hardcore leftist to sometimes wonder if the fascination for foreign royalty (and other, lesser, homegrown celebrities such as the Kardashians) is a means by which the common people may be distracted from recognizing the reality of their own, depressingly humdrum lives. Never mind any of that, look, there's a new and shiny royal baby on the way!

And yet it is not just that. America's "elite" media institutions also devote extraordinary dollops of attention to the Windsor soap opera. I am not sure this is necessarily a mark of great cultural confidence. The New York Times will, it is true, occasionally mock the silliness of it all, but most of the time, it is just as willing as US Weekly to babble on about royal wedding menus, hairstyles, and Lord knows what other examples of cringe-inducing, space-filling guff.

True, the royals are an entertainment whose foreignness gives them just the right amount of exoticism but whose (English-speaking) familiarity makes them sufficiently accessible to command a mass audience. Perhaps it is merely harmless entertainment. Nevertheless, watching Americans coo over the latest royal "news" is always faintly disheartening.

It is one thing for Britons -- or Canadians or Australians -- to take some interest in Kate's pregnancy. The infant will, some distant day, be expected to be our -- and their -- monarch. Americans have no such excuse. Is there not something mildly shameful, something plausibly demeaning, about this excessive fascination with another country's ruling dynasty? Aren't you supposed to be a bit better than this, America? There is no need for overt hostility to the British royals; a studied, even lofty, disinterest would surely be the most appropriate American attitude.

Benjamin Franklin's challenge to the new-born United States always carried a whiff of pessimism about it. "A Republic, if you can keep it," he warned. In truth, that kind of astringent republicanism perished long ago. Today, the goggle-eyed, breathless fascination with Kate Middleton's womb is perhaps but another reminder of the extent to which American exceptionalism, in this respect at least, is no longer quite as exceptional as once it was.

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