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The remittances
addiction
By Yukiko Ohashi
The corporate forces of globalization seek
unbridled freedom to transmit not only information,
ideas and capital across borders, but jobs as well in
the pursuit of greater efficiency - primarily, though
not exclusively, in the form of low wages. However,
there has been far less emphasis by the proponents of
globalization on the free flow of labor: the right of
workers to seek better jobs internationally, rather than
waiting for low-paying jobs to come their way, either
from local businesses or multinational corporations.
In this sense, criticism of globalization by the
developing world as uneven and unfair has some
justification. The international labor movement remains
tightly controlled and is beyond the reach of either the
International Labor Organization (ILO) or the World
Trade Organization to deregulate. Free labor, then, is
free trade's last frontier.
More than a dozen
countries dream of a totally liberalized international
labor sector. Their goal, not least, is to send their
workers abroad by the hundreds of thousands. This is not
a bad plan, except for one vital detail that is clearly
missing: these countries have demonstrated no long-term
plan for using the benefits of overseas labor to build
their domestic economies. In fact, those countries that
already base much of their economy on overseas
remittances appear to have become "hooked" on them as a
long-term source of income in themselves, rather than as
means to build self-sufficiency.
The statistics
on remittances economies are galling: countries that
began exporting their workers abroad decades ago
continue to do so without much improvement to their
structural economies. Major countries receiving workers'
remittances include Mexico, Turkey, Egypt, Brazil,
India, Morocco, Pakistan, Bangladesh, El Salvador,
Jordan and Yemen. In the case of the Philippines, its
foreign workers are spread throughout the world,
bringing in a total of US$41.6 billion over the past
decade alone.
Income remittances of some
countries make up a large proportion of gross domestic
product. According to the International Monetary Fund
(IMF), remittances have made up more than a fifth of the
GDP of Cape Verde, Eritrea, Mali, Jordan and Yemen. Yet
these remittances have not been able to burrow into the
formal economy to make a structural impact. If anything,
they perpetuate the uneven economic ownership already
prevalent in the country.
Although the total
amount of formal remittances increased from less than $2
billion in 1970 to at least $115 billion in 2003,
according to tabulations of the ILO, labor-exporting
countries' economies have reached a plateau. This is
despite the fact that the actual figure derived from
remittances, according to the World Bank, is usually
three or four times as high as the recorded amount. This
is because remittances could be sent home by informal
means too, as is the case with the Philippines, for
instance.
Last year, the central bank of the
Philippines reported a total remittances intake of $7.6
billion. These official income remittances alone
(without factoring in the unofficial funds noted above)
accounted for roughly 16% of the country's total
current-account receipts and 10% of GDP last year. In
the words of one former senator: "It is the only thing
that kept the peso from turning into Mickey Mouse
money."
Today, the Philippines is the largest
organized exporter of labor in the world, with 7 million
nationals working overseas in more than 100 countries.
They work as seafarers, nurses, domestic workers,
teachers and factory hands, among others.
Most
foreign workers (65% of those surveyed by the
International Monetary Fund) send up to 45% of their
earned salaries back home, sending the money eight to 10
times a year. Research by the ILO on the use of
remittances shows that a large part of these funds is
used for daily expenses such as food, clothing and
health care. Funds are also spent on building or
improving housing, buying land or cattle and buying
durable consumer goods.
However, according to
the ILO, only a small percentage of remittances is used
for savings and "productive investments" - in other
words, for activities with multiplier effects toward
income and employment creation.
Further research
in Bangladesh showed that only a small proportion of
remittance money was used for investments in businesses
(4.8%). An even smaller amount was used for savings
(3.1%) and the repayment of loans (3.5%). Child
education accounted for only 2.8% of the invested
remittances. These numbers point to one solid fact:
exporting workers to developed countries does not
qualitatively improve the economy of the countries that
sent them.
Some overseas workers are
middle-class and perform reasonably well-paying
professional work. However, most overseas work is menial
and labor-intensive, so the growth rate in total
remittances is bound to be small. This is due to low
labor mobility, with promotions or large pay increments
almost non-existent. Again, in the case of the
Philippines, a country that has "excelled" in sending
its workers abroad, the growth rate of income
remittances, in a good year, is 0.3% only.
The
Inter-American Development Bank has claimed that total
remittances growth is higher than this among Latin
American remittances, with banking officials pegging the
growth at 7-10%. However, that figure was derived in
1999, when the US economy was bullish, and it is
reasonable to assume that this figure has since climbed
down significantly.
Given these realities,
unless a developing country's government can hold down
the fertility rate, drastically increase foreign direct
investment, and vastly improve the economic climate, the
seemingly important contribution of overseas workers'
remittances will not amount to much, other than as a
stopgap measure, year over year, to tide a certain
section of the population over.
Thus, should a
country want to transform itself economically, it is
better to rely on a comprehensive strategy that can lift
the absolute welfare of the people, rather than to
concentrate narrowly on exporting jobs. The reverse is
also true; that is, countries that have traditionally
relied heavily on imported labor have found the practice
detrimental to their structural economies over the long
term. A primary example is Saudi Arabia, where more than
5.2 million foreign workers are the mainstay of the
economy, out of a total workforce of 7.2 million.
While the economic downsides of exporting labor
are evident, there are social factors as well that
cannot be ignored. In the case of the Philippines, for
example, 60% of its overseas workers are women, most of
them married. While they are abroad it is difficult or
impossible for them to nurture, and be nurtured by,
their families. The long-term psychological effects thus
inflicted on children derived of maternal care must be
considerable.
A further problem is the abuse and
exploitation often endured by overseas workers. Not only
are these people beyond the reach of their own
countries' help, they are often denied the protection of
international labor standards as well.
Good
economic policy begins at home, not in sending workers
abroad, no matter how green the proverbial grass may be
at the other side. Although remittances received from
abroad have been seen as the next best alternative to
countries that are permanently looking for handouts or
foreign aid, research has shown that once a country is
"addicted" to remittances, it is difficult to wean off
of them.
(Copyright 2004 Asia Times Online Ltd.
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