A Question of Money

Is the Allure of Remittances Fading?

? by Stéfan, with Creative Commons licence

Questioning orthodoxy is often the hardest, least rewarded task. Everyone hates a whiner, and even the most artful of dissenters rarely appreciate the value of their own kind. But only by pushing and prodding can we expand our understanding of the way things are, always with the aim of shifting them towards the way things should be. When J.K. Galbraith coined the term ‘conventional wisdom’ in the 1950s he did so in the belief that there was “a persistent and never-ending competition between what is right and what is merely acceptable”. He wanted to root out and analyse ideas that were popular only because they could be understood within a broad social consensus, regardless of their content. They were persistent because people built on them, using the same or similar methods to produce slightly different explanations.

I’ve written about money sent home by overseas workers to the Philippines before, but allow me now to consider recent comments by others to put the issue in perspective. When I attended the opening forum of the International Migrant Alliance in Hong Kong not long ago, the most credible of the speakers had an interesting tale to tell. Sonny Africa is an economist with the IBON foundation, a left-leaning think tank in the Philippines. He argued, very much against the conventional wisdom, that remittances might well be propping up individual households in the country, but there was no hard evidence that they were encouraging anything but low-level investment. Most importantly, he said that remittances were not beneficial to long-term economic growth.

Africa’s position sounds like sour grapes in a country that received a staggering US$17 billion in remittances last year, second only to vastly more populous China at $US25.7 billion. But other economists have been questioning remittances recently – not dismissing them, but asking whether their beauty is in the eye of the beholder.

YouNotSneaky, an economist blogger far more perceptive that the name suggests, has argued in much the same way as Africa that the benefits people think come from remittances are actually from the transfer of money within households. The overall economic benefit, he argues, comes not from the remittances themselves but from the entire process of labour migration. Reviewing the post at Marginal Revolution, Tyler Cowen agrees that “the gains are to be found in the immigration itself, not the subsequent transfer. Beware double counting.”

So the scene is set – the idea of remittances as an economic panacea might well be slipping out of the conventional wisdom. What could be needed is a much broader understanding of how international labour migration works – what causes it, what prolongs it, the conditions under which it becomes truly significant rather than just noticeable, and quite possibly a range of other, infrequently asked, questions.

The interesting thing about these recent comments is that they are in response to a report by researchers at the IMF entitled ‘Remittances and Institutions: Are Remittances are Curse?’, which was something of an inspiration for my earlier post on the matter. The report’s four authors argue that when a country has sent or allowed enough of its residents to work abroad, when there is enough money circulating within it regardless of how badly governed it might be, those in power have little incentive to build the institutions and conditions for effective governance.

Ultimately, the potential for catastrophe looms large. Paul Collier has shown how an abundance of natural resources and foreign aid has crippled African countries in his Bottom Billion. That’s a lesson worth considering in light of remittance dependence, but consideration and proof aren’t the same thing. One deals in the importance of possibilities, and the other in the clarity of certainties. Unfortunately, that hasn’t stopped the idea that remittances might be a curse – as welcoming a corrective as it is – from becoming just the right sort of irritation to form a new pearl of conventional wisdom.

The IMF report was released in February, but only recently has it surfaced in the popular, or semi-popular depending on your outlook, press. The July/August edition of Foreign Policy, something of a Foreign Affairs-lite, carries a combined rehash of the report and interview with one of its authors, Ralph Chami. Now Chami is just arguing his point, and it seems fair that he should if we remember J.K. Galbraith’s distinction between what is right and what is merely acceptable. More power to him for it.

Foreign Policy has chosen not to pursue possibilities – the article’s title draws attention to ‘the remittance curse’, without the question mark of the original report. So we’re just starting to drift away from the conventional wisdom that remittances can carry an economy, but immediately meet an indication that they could soon be seen as wholly inappropriate.

As Galbraith wrote all those years ago, conventional wisdom is – ultimately – predictable.

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