The delusion of remittances

Claude Clarke, Sunday Gleaner Columnist

Some years ago, a contestant in one of our numerous beauty pageants flubbed her interview by saying, when asked about her career aspirations, that she wanted to "export foreign exchange". Though the beauty contestant misspoke, the sentiments she expressed have much in common with the views of our prime minister.

Bruce Golding was recently reported as promoting the idea of training Jamaicans to be employed overseas. This is a position he has advocated before, and which he holds in common with many other highly placed persons in our society. In fact, the prime minister has been reported as saying that his Government views overseas employment as "intellectual export", and that more emphasis must be placed on training Jamaicans for work in markets that can absorb their labour.

For our chief policymaker to believe that the best use to which we can put our country's most valuable resource - our people - is to export them, and to do this after we have developed, educated, and trained them, raises the important question of whether he fully appreciates the true value of our people to our country. It is also a sad confession that our Government lacks the capacity to create conditions in which the value of our people can be realised for the benefit of the country.

Substantial investment

Before a person is ready to be economically productive, a country would have made a very substantial investment in his development, through the effort of his family and the taxpayer. According to the United States Census Bureau, by the time the average US citizen from a middle-income household is 17 years old, approximately US$210,000 would have been invested in his development. When four years of college is added, the total amount invested in the average college graduate would be in the order of US$350,000. To recover this large investment and realise a return, the productive output of the individual would have to be delivered in the country that made the investment, not another country.

In reacting to these facts in the Jamaican context, those who share Mr Golding's view are likely to reflexively cite the benefit of remittances to our economy. But remittances, the growth of which has for many years burnished the image of our economic stewards, need to be better understood to determine their true value.

An individual's economic worth is determined by the value his employment creates. However, information from Bloomberg is that among the five biggest Wall Street banks, where the worker's share of value created is as high as it gets, employee compensation represents an average of only 35 per cent of the value produced through his employment.

The US Census Bureau estimates that the average employee uses approximately 80 per cent of his pre-tax income for personal and living expenses (for Hispanics, the demographic group most likely to send remittances, it is 85 per cent). If we use the 80 per cent expenditure, and we assume that 10 per cent goes to pay income tax, only 10 per cent would remain, from which the gift of remittance can be drawn. Although highly unlikely, if he were to remit the entire 10 per cent, that would represent no more than four per cent of the value his employment had created. The remaining 96 per cent would stay in the United States for the benefit of that economy.

Apart from the unworthiness of the idea that we have to look to others to give our people economic opportunity, logic does not support the belief that the country benefits from the export of its people any more than we would benefit from exporting foreign exchange.

That belief is confounded by the facts, and expressed by those who wield power, exposes a bankruptcy and tiredness of thinking that presents a real threat to our country's future. It perhaps explains the World Bank finding that more than 80 per cent of our tertiary graduates emigrate, and why our economy floundered in the 1990s and 2000s while the world was experiencing its greatest economic boom in a century. It also helps to account for the fact that while the rest of the world is now recovering from the recent 'Great Recession', Jamaica's economy is continuing its downward slide.

Remittances, which stood at US$184 million in 1990, just 4.5 per cent of GDP, increased by more than 1,000 per cent to reach US$2 billion in 2008, a staggering 15 per cent of GDP. In the meantime, our economy stagnated, crawling along at less than one per cent growth per year, hardly enough to keep pace with our growing population.

Remittance and poverty

These facts suggest that the growth of remittances has not advanced our economic well-being and are consistent with World Bank data, which show that generally, the countries in which remittances represent the highest percentage of GDP are among the world's poorest.

For many years, the impressive growth of our remittances has obscured the dubiousness of their contribution to our economic health. The not-so-well-hidden, dirty little secret about remittances has been conveniently ignored. Although a fair portion represents the efforts of honest, patriotic, and hard-working emigrants, remittances provide the most effective conduit for the laundering of the proceeds of the drug trade. Since 2006, at least five major US financial institutions have come under investigation by the Justice Department for accommodating money laundering through their remittance activities. The US Justice Department has seen clear evidence that there is intermingling of drug money with remittance flows, even through some of their most prestigious financial institutions. For Jamaica to pretend we are immune to such contamination - when we are said by the CIA to be favoured by Colombian narcotics traffickers for their illicit financial transactions, and are at the same time ranked among the world's murder capitals - is to test the boundaries of credibility.

To the extent that any remittances to Jamaica facilitate criminal activities, their effect on our economy is destructive and retards the country's development. It also feeds into the cultural weakness of expecting to live by the sweat of someone else's brow. It is a culture we need to change.

Lee Kwan Yew, the father of the new Singapore, acknowledged the primary role of culture in a nation's development when, in a 2008 interview with Fareed Zakaria of CNN, he said, "More than economics, more than politics, a nation's culture will determine its fate."

No doubt Mr Lee's reference to culture was less in the context of the arts and other creative expressions than in the sense of the ideas, customs, and social behaviour of a society. This was obviously the conviction which drove his effort to change the cultural norms of Singaporeans to power the economic revolution he started in the 1960s. Lee recognised that unhealthy cultural habits were at the root of the squalid economic and social conditions of the Singapore of the 1950s and that a radical cultural shift would be necessary for the country to progress to a future of peace and prosperity and to become the world leader in productivity, innovation, and technology that it is today.

A critical part of this transformation was to develop in Singaporeans a strong appreciation of their inherent worth and productive value. To satisfy the basic human need for dignity and self-affirmation, the Government set out to create jobs appropriate to the skills and education levels of the people. Beyond that, expanded opportunities for education and training to match the needs of the rapidly industrialising economy provided a ladder for economic and social advancement. The country's entire economic surge was mounted on an aroused consciousness of the importance of Singaporeans to Singapore's development.

So committed was the Singaporean government to engaging Singaporeans in their country's development that where the country's educational and training facilities were inadequate to satisfy its development needs, its people were sent to the best institutions abroad, to return and join in the country's development.

Full participation of Singaporeans

Moving Singapore from a highly disorganised, underperforming economy racked with social and economic problems to an orderly and productive economy could only have been accomplished through the full participation of the Singaporean people. This approach moved the economy seamlessly through labour-intensive operations in the 1960s and 1970s, capital-intensive activities in the 1980s and 1990s, and into the forefront of the world's knowledge-intensive economy in the 2000s. It is little wonder that today, this tiny city state of four million people boasts the world's third-highest per-capita GDP (based on purchasing-power parity).

The success of Singapore's strategy of fully engaging its people in the country's development makes it more inexplicable that Jamaica's leaders would give any thought to a development strategy anchored on anything but the fullest engagement of the Jamaican citizen in the Jamaican economy.

Our leaders must commit to a path of development led by the productive effort of our people as Singapore did and not continue to pursue the myth that exporting our most productive people in exchange for remittances can lead us to prosperity.

Jamaica is sometimes said to suffer from a lack of visionary leadership. While that is undoubtedly true, based on their approach to development, our most costly deficiency is the absence of common sense in our leaders.

Claude Clarke is a former trade minister and businessman. Email feedback to columns@gleanerjm.com.