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Remittances and the Fallacy of ‘Migration-Development’

by Matt Withers on August 15, 2019

In Sri Lanka, as throughout most of South Asia, low-waged temporary labour migration into regional hubs of growth and accumulation is a longstanding livelihood practice, internally and internationally. Patterns of uneven development, their roots extending far back into colonial and pre-colonial history, have hewn vast fault lines of economic exclusion across the subcontinent and conditioned a common need to migrate seasonally or temporarily in search of work. As Jan Breman has argued, this survival strategy prevails as a dominant feature of South Asian labour relations. It is perhaps most notably manifest in the international migration of poorly paid domestic workers, construction workers and other, typically menial, forms of labour as an in situ fix for the developmental aspirations of oil-rich Gulf Cooperation Council countries in West Asia. Commencing in the 1960s, and involving the temporary migration of millions of workers by the early 1970s, this South to West Asian migration corridor has overseen the largest coherent international movement of labour in history. These workers have endured some of the most deplorable working conditions and rights abuses of the postcolonial era, not only performing ‘3D’ jobs (i.e. the dirty, dangerous and demeaning) routinely earmarked for migrant workers but employed in conditions unexaggeratedly akin to modern-day slavery.

My new book, Sri Lanka’s Remittance Economy: A Multiscalar Analysis of Migration-Underdevelopment, contests the dominant assumption of migration-led development that follows from the application of rational choice theory to the motives of temporary labour migrants. The neoclassical argument is a simple one: if migrants are believed to work abroad voluntarily, as a result of individual or household rational cost-benefit analysis, it follows that the weight of developmental outcomes must be beneficial (or else rationality itself is belied). Despite significant and sustained counterclaims from critical migration scholarship during the 1970s and 1980s, rational choice has been re-established as axiomatic following the post-millennial ‘rediscovery’ of migration-development.

At the heart of contemporary fervour for the prospect of migration-development is the foreign income sent home by migrant workers – remittances. Whereas earlier waves of migration-development theory took shape around debates over wage equalisation, human capital formation and trajectories of developmental convergence/divergence, remittances are a relatively new source of academic and policy attention. This is not coincidental. Until the 1990s, the sum of remittance receipts flowing to developing countries was not particularly significant relative to other capital inflows. By the early 2000s, however, remittances had eclipsed official development assistance (ODA), and even foreign direct investment (FDI), for many developing economies. Taken in aggregate, remittances appear to entail a large transfer of capital that should not only benefit individual migrants and their households, but yield spillover effects that catalyse development outcomes for local communities and national economies. The intuitive sway of this logic – that income transfers promote development – has left even those critical of temporary labour migration schemes acknowledging an implicit developmental benefit to remittances.  

It is this characterisation of remittances as a form of developmental capital that underscores the World Bank’s now-ubiquitous ‘triple win’ thesis, used to promote the temporary migration of low-waged workers from countries throughout the Global South – and recently invoked in Australia’s new Pacific Labour Scheme. The triple win thesis posits that temporary labour migration is mutually beneficial for migrant workers, the (developing) countries they originate from and the (developed) countries they travel to – i.e. a ‘win-win-win’ scenario. Migrant workers are expected to benefit from improved wages, the development of skills, and opportunities to invest their remittances upon returning home; migrant-sending countries are expected to benefit from a net increase in human capital via ‘brain circulation’ and the accumulation of foreign exchange earnings from remittance receipts; while migrant-receiving countries are expected to benefit from access to ‘flexible’ labour markets to address skill shortages and supplement production.

While the ‘win’ for migrant-receiving economies is readily apparent (i.e. access to a global reserve army of cheap and exploitable labour), the benefits associated with corresponding remittance inflows are under-theorised and empirically unsubstantiated. Much like the concept of microfinance, remittance-led development is a popular narrative in the genre of ‘self-help development’, in which credit constraints form the principal impediment to a latent groundswell of entrepreneurship that, unfettered, would spearhead economic growth. There is conspicuous disregard for state-driven development and the accompanying rungs of public services, welfare, job creation, protectionism and industrial policy that have historically comprised the ladder to capitalist development. Instead, cast as individual agents of development, migrants are held accountable for improving their own circumstances by ‘selling’ their labour power abroad and subsequently ‘investing’ the residual component of their remitted wages.

Although the World Bank continues to assert that remittances will alleviate poverty, spur migrant entrepreneurship, create spillover effects for local communities and improve the creditworthiness of migrant-sending countries, even IMF economists have warned of the null hypothesis between remittances and economic growth. More damning is the lack of a readily identifiable migration-development success story. At an abstract level, this is hardly surprising. From any understanding of ‘development’ as a relative measure of prosperity between countries, the triple win is an intuitively absurd proposition: akin to expecting labour to converge upon capital through the employment relationship itself. My book attempts to offer a more systematic analysis of this relationship by mapping the implications of remittance transfers at multiple scales: from recipient households and local communities, to Sri Lanka’s national economy and global patterns of capital accumulation.

There is a tendency to think of remittances only in aggregate: as billions of dollars flowing from richer to poorer countries. But remittance capital is distinct from other forms of developmental capital, being simultaneously comprised of atomised private income transfers and the combined foreign exchange earnings they amass, both of which have important macroeconomic consequences. In Sri Lanka, where migrant workers are equivalent to ~25 percent of the domestic workforce, these are not trivial outcomes.

On the one hand, the lifecycles of migrant income transfers can be highly complex. Remittances are only the portion of migrant incomes not spent during foreign employment or deducted for living expenses; they incur steep transfer fees, are frequently prioritised to repay loans taken to cover recruitment costs, and are then typically spent on household consumption and other liabilities before any remainder could possibly be allocated for ‘investment’ purposes. Interviews with returned migrant workers in Sri Lanka indicated that remaining remittances were rarely spent on business activities but – influenced by social customs varying between ethno-religious communities – regularly put toward housing, education, healthcare, consumer durables and jewellery. The fragmented expenditure of remittances at the household level can reinforce existing macroeconomic imbalances – with non-subsistence expenditures generally spilling over into centralised processes of accumulation or demand for imported goods.

On the other hand, the total foreign exchange receipts of these transfers provide an annual US$7 billion buffer to Sri Lanka’s current account, helping to maintain currency stability amid a persistent trade deficit. Maintaining a strong rupee has certain advantages: it helps to finance imports and repay external debt accrued through developmental loans. In a sense, much of Sri Lanka’s post-war development has been financed by migrant workers’ remittances. Yet, crucially, an overvalued currency places additional constraint on how these developmental loans are spent, particularly when compounded by the Dutch Disease effects remittances tend to produce. Sri Lanka’s already anaemic export sector has collapsed astride increasing remittance inflows – dwindling from 35 percent of GDP in 2000 to just 13 percent in 2017 – with capital moving from the tradeable to the non-tradeable sector. Development spending has not been earmarked for industrialisation or export diversification, but a variety of pork barrel infrastructural projects built with Chinese loans and labour, highlights of which include a loss-operating port and the world’s emptiest international airport. There is an aspect of path dependency here too: with ever-increasing remittances (and therefore migrant departures) needed to maintain the currency and repay existing loan obligations, inclusive development and local employment generation threatens to kill the cash cow.

Despite extending the short-term viability of its own uneven development and keeping poor households above the poverty line, Sri Lanka’s dependency on temporary labour migration and remittances is entrenching long-term underdevelopment by neglecting local industry in favour of routing labour power and effective demand to other regions of the world economy. The productive and reproductive capacity of migrant-receiving economies is subsidised by ‘the new helots’ (as termed by Robin Cohen), while the costs of socially reproducing this indentured workforce remain borne by countries of origin and, increasingly, migrant households. Meanwhile remittance capital only filters through economies like Sri Lanka, partly recirculating as import spillovers to manufacturing economies and loan repayments to creditor nations. Although framed as mutually beneficial, the relative distribution of ‘wins’ associated with temporary labour migration seem decisively skewed towards the already developed. With the ladder of industrial development receding from view, Sri Lanka is left to confront a vulnerable overdependence on remittances, as an entirely exogenous source of developmental capital that is precariously tied to the continued good fortune of West Asia’s oil-economies. 

With similar ‘remittance economies’ emerging throughout the Global South, serious questions must be asked of the dominant migration-development policy discourse, particularly the continued espousal of migrant entrepreneurship and remittance-driven development without the quantum of evidence needed to lend veracity to such claims. The triple win is essentially an argument that the ends of temporary labour migration justify its means; in the context of the South Asia to West Asia migration corridor, in which the most egregious violations of human and labour rights are entirely commonplace, this justification falls alarmingly short.

Matt Withers
Matt Withers is a research fellow within the Department of Sociology at Macquarie University. His research is concerned with the developmental implications of temporary labour migration and remittances, both in Sri Lanka (where his PhD fieldwork was conducted), and throughout the Asia-Pacific region. His work adopts a multiscalar approach to migration dynamics and draws attention to local geographies and institutions as key sites of understanding through which to reconcile structural analysis with diverse and contextually-specific experiences of development and underdevelopment. His current research looks at how temporary labour migration intersects with work and care arrangements within migrant households, and calls for a ‘decent care’ agenda that frames support for gender-equitable social reproduction as integral to decent work and sustainable development.

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