Paul Collier
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As with the prospect of emigration on education, the decision to return can be viewed both as a calculation and as copying role models. The difference in the payoffs to returning to China and Africa are clear enough, but this may be reinforced by differences in the narratives. China’s spectacular growth readily seeds a narrative that acquiring Western higher education is just a springboard to harnessing opportunities within China: it is the prelude to domestic success. In contrast, for Africans return migration has long been associated with failure to make it in the West. Once established, the role models derived from such narratives may take on a life of their own and drive decisions well beyond the range implied by objective rationality.
For societies that are small and poor it may all sound a bit desperate: those left behind must content themselves with being lured into education induced by prospects that do not materialize, the return of developed economy rejects, and a trickle of returning students.
But then, the situation of the bottom billion is pretty desperate.
While the diaspora might not itself drive growth, it may be well placed to gear it up once some other factor gets it going. Currently, several African countries have started to grow quite rapidly thanks to resource discoveries. While resource-based growth has often proved to be unsustainable, as I discussed in The Plundered Planet, it may be the trigger for attracting back the diaspora. Such a coordinated influx
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of talented people may be critical in breaking bottlenecks and so improve the chances that growth can be sustained. A large diaspora is a latent asset for a country of origin that can be tapped once the conditions are right. It is a human variant on the sovereign wealth funds that are now fashionable.
Where does this leave the “brain drain” as a concern? For developing countries as a group the concern is clearly misplaced: gains outweigh losses. But the category “developing country” can no longer be taken seriously. China, India, and many other countries are rapidly converging on the high-wage countries. Intractable poverty as a problem that warrants substantial and sustained international attention is becoming concentrated in the small, poor countries that have suffered significant net losses of their scarce skilled population. As their diasporas build up, their rate of emigration is likely to increase. For these societies, “brain drain” unfortunately remains the right concern.
Is There a Motivation Drain?
So far, I have considered only education. While this is important, it is a narrow perspective on the productivity of a worker. In chapter 2
I introduced the idea that productivity depends on whether a worker
internalizes the objectives of the organization. 7 If a plumber, does he
self-discipline because being a good plumber has become part of his own identity; if a teacher, does she turn up for work and refresh her skills because she identifies herself as a good teacher? More generally, do workers identify themselves as “insiders” or “outsiders” in the organizations for which they work? As with other aspects
of behavior, these alternative attitudes to work can be imitated.
Migrants will tend to come from among those people who have the most positive attitudes to work: they want to move to jobs in effective
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organizations where their talents will be harnessed. 8 This feeds back
to the remaining population. The conscientious teacher has emigrated; it is the ineffective one who is still in the classroom. It is this ineffective teacher with whom young teachers interact and who sets the norms of what is expected. With fewer “insider” role models to imitate, remaining workers are more likely to choose to self-identify as “outsiders.” Nobel laureate George Akerlof and Rachel Kranton have developed a model that predicts just such an effect. As “ insiders”
selectively emigrate, those left behind face higher costs of becoming insiders themselves: they would stick out like a sore thumb. But as fewer people choose to become insiders, the productivity of those
left behind declines. 9
While their model has yet to be tested in poor countries, there is some supporting evidence. A study of trainee nurses in Ethiopia tracked their motivation both at the time of completing their training and three years later, when they had been placed in government clinics. 10 Unsurprisingly, on the eve of their career as nurses, most of these young people wanted to be Florence Nightingale: they were motivated to heal the sick. Three years later, their attitudes conformed to those prevailing in the clinics to which they had been assigned, with cynicism and corruption being widespread. While this does not tell us about migration, it does support the Akerlof and Kranton mechanism that whether young workers become
insiders or outsiders depends on the balance between them in the workplace. But there is one study that is indeed about migration from poor places to rich ones. It is about migration of educated African Americans from the inner cities, which remain predominantly African American, to those parts of America that are predominantly white. 11 It finds that the exodus of the black middle
class is a major reason for the persistence of poverty and dysfunction in these neighborhoods. The opportunity for exodus must still
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be an incentive for education. But even were there to be a brain gain, it is more than offset by the reinforcement of outsider attitudes. Productivity is not directly determined by education, but by what people do with it.
Is the loss of role models for insider attitudes important for poor countries? We simply do not know, but we can split the question into two parts: are outsider attitudes to work an important problem in these societies, and does migration significantly contribute to them? Outsider attitudes are prevalent in the public sectors of many of these countries, and these sectors are large. In many countries it is common for nurses to steal drugs and sell them, for teachers to skip classes, and for government officials to take bribes. In all these organizations there are also insiders, but they stand out as valiant exceptions and often incur the disapproval of their peers. There are now comparable indices of corruption that substantiate concern, but a more graphic way of grasping the severity of the problem is an anecdote from a ministry of health. As before, I offer an anecdote not as evidence, but for understanding. Offered aid to purchase antiret-roviral drugs, the ministry’s chief official secretly set up his own company to import them. Using his authority, he duly purchased the drugs from his company for his ministry. But onto this abuse of his public office, he added a dramatic twist: in order to cut costs, the drugs he imported were fakes. The chief official in a ministry of health had so failed to internalize the objective of his organization as to find mass mortality an acceptable price for personal gain. With such extreme outsider attitudes at the top, it would be unsurprising were outsiders common throughout many public organizations.
While outsiders to the organizations for which they work, such people are not immoral in their own terms: they are insiders to their clan, using their corruptly acquired money to help their extended family. Similarly, a common critique of Haitian society is that people
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have become mired in outsider attitudes: passive dependence on external aid, and a zero-sum game narrative in which there is an exaggerated fear of being exploited. So let us accept that outsider attitudes are a problem for many poor societies.
What is much less clear is whether migration significantly accentuates this problem, as it appears to do in America’s inner cities. Even if insiders self-select into migration, in most occupations the scale of emigration is too modest to have much impact on the balance of attitudes. Where the mechanism may matter is in more senior and skilled positions in dysfunctional organizations. A continuous loss of the few insiders may prevent them from ever accumulating to a tipping point at which insider attitudes are self-sustaining. The issue has not yet been researched.
Remittances
Even if migration from
small, poor countries results in a net loss of talented and motivated people, it might nevertheless be beneficial for the people left behind. As discussed in chapter 6, the migration decision is often taken jointly by the migrant and her family; migrants stay very much connected to their families, and a key form that this connection takes is remittances. Many migrants come from rural areas of poor countries. From the perspective of the family back home, whether the migrant has moved a few hundred miles to relatives in Nairobi, or a few thousand miles to relatives in London, may be less important than the size of the remittance that the family receives.
So how generous are migrants? An early study of how much money Nairobi-based migrants sent back home to rural Kenya caused a stir because it seemed so high: 21 percent of earnings went back to the village. 12 Benchmarked against this sort of generosity, how do international migrants compare? The range varies enormously. 13 Mexican
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migrants to the United States remit an astonishing 31 percent of their earnings. But some migrants are even more generous. Migrants from El Salvador living in Washington remit 38 percent. The Senegalese in Spain remit a world-beating 50 percent of their earnings; the Ghana-ians in Italy remit around a quarter; Moroccans in France remit a tenth of their earnings, while Algerians are a bit lower at around 8 percent. Continuing down the league table of generosity, both the Chinese in Australia, and Filipinos in the United States, come in at around 6 percent. Two high-profile migrant groups skulk near the bottom: Turks in Germany and Cubans in America return a measly 2 percent.
In aggregate, all this generosity adds up to enormous sums.
Remittances during 2012 from high-wage countries to developing countries total around $400 billion. This is almost four times global aid flows and roughly on a par with foreign direct investment.
However, such numbers should not mesmerize because they are
highly skewed: they give an exaggerated sense of the importance of remittances to poor countries. Neither generosity, in the sense of the proportion of earnings that the migrant remits, nor how much in total a country gets is the right yardstick for impact. On the absolute amounts the two big winners among countries of origin are India and China with over $50 billion a year each. But while $50
billion is not exactly chickenfeed for China, neither is it that important. The best measure of the importance of remittances for the people left behind is to benchmark them against the income of the country of origin: converted into a more human concept, this shows remittances relative to income for the average household back home. Globally, the remittances of migrants from low-wage countries living in high-wage countries are around 6 percent of the income of countries of origin, the average remittance per migrant per year being around $1,000. However, as with the concept of the
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brain drain, the averages are of limited use because the underlying concept of “developing countries” has become redundant: variation among those formerly “developing” countries is now the story.
Haiti again provides an example of a high-emigration, impoverished country. Haiti suffers a substantial brain drain: so many educated Haitians leave that, despite the enhanced incentive to get an education, the society suffers a net loss of its talent. But the remittances from this massive pool of skilled emigrants are in consequence substantial at around 15 percent of income. This is not enough to lift Haitians out of poverty, but if you are up to your neck in choppy water, it does make you feel a little safer.
Haiti is one of the major beneficiaries of remittances, but it is not entirely exceptional. Those generous Salvadorans also make a substantial difference to the people left behind: remittances are 16 percent of income. Even for a few of the big poor countries, remittances matter a lot: for both Bangladesh and the Philippines the figure is 12 percent. For Africa as a whole, remittances are much less important. The highest remittance inflow in Africa is for Senegal: the world-beating generosity of those Senegalese migrants shows up in a contribution of 9 percent of income.
So for the typical country of origin remittances add a few percentage points to the income of the people left behind. Of course, had the migrants stayed home they would have earned an income, and this would also have helped their families. Since the typical remittance is only around $1,000, migrants would not have had to be particularly productive in order to match through their work the contribution made by remittances. So it seems doubtful that post-migration income is substantially different from what it would have been without migration: remittances largely offset the loss of output. The difference is that there are now a few less mouths to feed,
and so per capita expenditure can be a little higher. 14
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Skepticism about aid does not extend to flows that are person to person: whereas governments are assumed to do no right, self-interested people can apparently do no wrong. But in fact donors face the same problem whether they are a development agency or a migrant. They want their money to be well used, but they do not control how it is spent. Both types of donor face a credibility problem if they throw a tantrum and threaten to suspend further gifts: the recipient knows that this is unlikely. Both can try to limit the choices of the recipient: the aid agency can specify a project that it will finance; the migrant can do likewise. But the recipient can largely circumvent such earmarking. In extremis, he can ignore the earmark and hope to explain away the change as a sudden necessity, but the most straightforward strategy is to persuade the donor to finance something that the recipient secretly intended to produce anyway. The new school is a gift of the American people: see the plaque. Actually the school would have happened anyway: it is the four-wheel drives for bureaucrats that would not otherwise have been bought. Similarly, the new school uniform is a gift of Amer in London: thanks Amer, here’s the photo. Actually, that was already budgeted: the remittance money went on Dad’s drinking binge. Experimental evidence shows that migrants, just like donor agencies, would like recipients to save more of the money that they are given. When offered the chance, migrants opt for greater control over the money, right up to dual-key systems in which the donor has to coauthorize each item of expenditure from a bank account. Development agencies were once driven to just such a system in Liberia. So the issues surrounding whether remittances are well used are not so different from whether aid is well used.
Not only are the issues similar, but so are the difficulties of measuring the effects. As with aid, there is a macro approach and a micro approach. Ideally, the macro approach would be more decisive, but
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it is also more problematic. On aid, the most recent serious study finds, fairly convincingly, that it has modestly net favorable effects
on growth. 15 On remittances, the results are currently inconclusive:
three studies showing positive effects on growth, and three showing zero or negative. Fortunately, the micro approach to remittances is more revealing than the micro approach to aid; unlike aid, it can focus directly on recipient households.
The most ingenious way of teasing out how people use remit-
tances is to find situations in which there is a change in remittances that is unrelated to the circumstances of the recipient. One such natural experiment occurred through the East Asian crisis of 1998, during which the region’s currencies collapsed against the dollar by differing amounts. Depending on where a migrant was working, her remittances suddenly changed value substantially in local currency.
Dean Yang has used this variation to study the effect of remittances
in the Philippines. 16 Some households had migrants working in the
United States, and these remittances suddenly became 50 percent more valuable once converted into local currency. Other households had migrants working in Malaysia and Korea, and remittances in their currencies fell in local currency value. Comparing the responses of households with such differently located migrants yiel
ds a convincing account of how remittances are used. Was this remittance windfall frittered away unsustainably on consumption, or was it used for investment? The study found a strikingly clear result: all the extra money was spent on investments of various types: the education of children and new businesses. This seems almost too good to be true, and it probably is: this natural experiment involved a remittance shock that was clearly likely to be temporary, resulting from a currency crisis. Economists have long understood that temporary shocks to income are absorbed predominantly by changes in assets rather than consumption. Hence, while
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ingenious, it is not a good guide to how remittances will be used if they are expected to persist for many years.
So for how long do remittances persist? There is evidence that they are motivated by the desire to protect inheritance rights: if so,
young migrants are in it for the long haul. 17 But even if remittances
are not used only for investment, in some circumstances even the tough-minded would want recipients to use them for consumption.
Poverty is like living up to your neck in choppy water, so at times when the water rises it would be comforting if remittances rose in response. Mobile phones have helped migrants to respond to adverse shocks because they can stay regularly in touch. So do migrants provide such a lifeline? Again, natural experiments can be used to tease out a convincing answer. The ideal shock to study is the weather. Changes in local rainfall produce temporary shocks to household incomes in the country of origin (again, as it happens, the Philippines), and the researchers simply need to observe whether remittances respond. Sure enough, they rise when income falls and fall when income rises. The insurance effect is substantial, with around 60 percent of an adverse shock being offset by extra remittances. 18 Households with migrants were much better able to protect consumption than those in which the entire family had stayed home. Similar effects have been found for hurricanes in the Caribbean, a region with both large shocks and large diasporas. Around a quarter of the damage was offset by additional remittances. The insurance role of remittances matters both because of its direct benefits in keeping heads above water and because of its less obvious consequences. Precisely because living up to your neck in choppy water is scary, people resort to desperate and costly strategies to avoid drowning. They are willing to sacrifice some of the income they could expect on average if this makes the remaining income less volatile: they opt to be poorer but safer. So by being an effective