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June 04, 2007
Remittances as "philanthropy": The worst development idea I've seen this year
Posted by Michael Clemens at 02:34 PM
The latest Hudson Institute "Index of Global Philanthropy" just came out. It makes a very important point: that the United States gives an enormous amount of private, voluntary cash assistance to people in developing countries, far in excess of its official aid. Indeed, it shows that Americans give more to poor countries via private channels -- as a fraction of national income -- than any other rich country. They also give more privately (about $33 billion in 2005) than they do through public aid mechanisms (about $28 billion in 2005). We should think a lot about how other countries might follow the U.S. lead on in this regard, and how those donations might be better used.
Unfortunately, this valuable point is helplessly crushed under the weight of a big, ludicrous blunder that this same report makes, year after year. Beyond the $33 billion that Americans give in private transactions, legitimately called donations, the report includes $62 billion of workers' remittances in Americans' "total assistance" to poor countries (Chart 5). In other words, the Hudson Institute believes that about half of Americans' "global philanthropy" comes from workers' remittances. The report includes that money in a list of ways that Americans have responded to the "call to alms" (pp. 19, 23). This is one of the most worthless claims in the entire development field. Let's toss this idea on the dung-heap where it belongs, once and for all.
What is a "worker's remittance" anyway? Take the case of José Edgardo Andrande, a Salvadoran who works in construction and other jobs in the United States. He sends or "remits" about $700 a month home to support his two sons and his mother. He was the subject of a recent New York Times article.
My parents worked for many years to support their two sons (yup, I mean me), and helped out their elderly mothers too, just like Mr. Andrande. The money they spent clothing and feeding me and sending me to university was simply paying the bills, a small part of which they could deduct from their taxes via the dependent allowance. It most certainly was not a 100 percent tax deductible charitable donation. Why not? Because helping relatives is neither "philanthropy," nor "assistance," nor "alms." It is a transfer within a household, broadly considered, and it is part of the reciprocal relationships present in every household on the planet. The support my mom and dad gave me would not magically have become charity if it had happened to cross an international border, as Mr. Andrande's does. (Even if it were, Mr. Andrande's decisions have nothing whatsoever to do with Americans' generosity; he is not American.)
If you can swallow the Hudson Institute’s logic on this one, then anyone who ever raised a child or helped a relative is a “philanthropist.” Unfortunately, if everyone on earth is a philanthropist, then no one is. David Roodman and others have made this point before.
But aren't we "generous" for giving a Salvadoran like Mr. Andrande a job? The construction companies and restaurants that have employed Mr. Andrande in the United States did not choose to employ him instead of a U.S.-born person due to their interest in the welfare of Mr. Andrande's sons and mother. They employed him because of the low wage he accepts, and its effect on their profit margins. The same employers might also give to charities, but that has nothing whatsoever to do with Mr. Andrande's job. The tacit weak enforcement of U.S. border controls does not constitute "generosity" either; it is the outcome of domestic labor shortages and domestic political struggles entirely divorced from development concerns. The simple fact is that nothing at all about the money Mr. Andrande sends home involves any donation or generosity by any American, ever.
The Hudson Institute's claim that U.S. overseas "assistance" to poor countries is $123 billion per year, or almost 1 percent of national income, deserves only to be ignored and forgotten. Using their figures (assuming they are correct) without remittances, assistance is $61 billion, or 0.49 percent of national income. This is still a lot more than official aid, and it is worthwhile for the Hudson Institute to point that out. Such a useful message would come through more loudly and clearly if they would drop their flaming gaffe from next year's report.
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Comments
Michael
Your arguments are spurious.
1. Without remittances for FOOD, CLOTHING and EDUCATION, Mr. Andrande's children would probably be undernourished and out of school, and probably "working" in the street.
2. The source of the money he sends home is from the US economy (hopefully net of taxes)and the GDP.
3. It is voluntary. Mr Andrande could simply disappear into the US and forget about his responsibilities.
Posted by: Timothy at June 5, 2007 01:24 PM
Thanks for your comment, Timothy. My arguments are not spurious. Let's think over each of your statements:
1. Without the money my mom gave me for food, clothing, and education, I would have been out on the street too. That does not make the money she gave me "philanthropy". It is part of a reciprocal relationship she and I have. Charity is not reciprocal. Did your parents claim the money they paid to raise you as a charitable contribution, done from the altruistic goodness of their hearts and for no other reason? Check their tax forms and you'll find that they did not.
2. Yup, all remitters' money comes from the US GDP. So does the money your parents paid to raise you. That doesn't make it charity either. All money that anyone pays for anything (iPods, snacks, vacations) comes from US GDP too. If coming from US GDP makes an expenditure charity, then all expenditures on all things are charity.
3. Yes, Mr. Andrande's expenditures on his children are voluntary. So were your parents' expenditures on you. Either (or both) of your parents could have abandoned you, and spent less than they actually did. That still does not make the money they spent on you "philanthropy" or pure "generosity".
Posted by: Michael Clemens at June 5, 2007 04:46 PM
All I have to say to Michael's response to Timothy is: "Zing!" Somebody should have thought out their argument before throwing around the term "spurious." Invitation to Timothy: could you please, please come back and comment again?
Posted by: Mark at June 5, 2007 05:22 PM
Timothy, here's a thought experiment you might find helpful.
Imagine a Nicaraguan woman who works in a US-owned textile plant in Nicaragua, making shirts to sell in the US. Every night she goes home and uses part of the wages she makes to feed her kids. This is not an act of charity alone; like all working mothers, she raises her kids partly for her own benefit.
Now suppose the same US-owned textile plant is located in Texas. The same Nicaraguan woman works in the plant, but her children are back in Nicaragua. Everything else besides the location of the plant and the woman remains the same. She still uses part of her wages to feed those kids, but since they are not in the US, she needs to send the money across an international border to reach them. Her motives for doing so are unchanged. The money she sends to her children has now become a 'remittance'. But it isn't any more 'charity' than it was in the previous paragraph, when she lived in Nicaragua.
Notice another thing: When the US plant is located in Nicaragua and pays wages to the woman there, that money is not charity from the US company to her or her kids. The woman works hard for her pay. Now take the same plant and the same woman and put them in Texas again. The wage the woman makes, and the portion of it that she sends to Nicaragua, are still not "charity" from the US company or any other American. It's earned money. Putting her and the plant in Texas rather than in Nicaragua did not turn the woman, or the company, or any American into "philanthropists".
Americans are very generous, as the Hudson Institute Report shows. But counting workers' remittances as part of that generosity is laughable and only serves to obscure the report's contribution.
Posted by: Michael Clemens at June 5, 2007 09:39 PM