Transnational Corporations Of Kin

Two reports released in recent weeks take diametrically opposed views on proposed Pacific Island labor migration schemes to Australia and New Zealand.

 

The World Bank’s report “At Home And Away” recommends the trialing of pilot schemes, saying labor mobility “could make a significant contribution towards enhancing economic and social stability in the region.”

 

The Center for Independent Studies (CIS) has a different stand, saying the economic impact of seasonal workers going to Australia and New Zealand would be negligible, that the labor market should look first to rural aboriginal communities in Australia and Pacific Island residents in New Zealand to fill labor shortages. It also asserts that such schemes would reduce the incentives for Pacific Island governments to institute real economic reform.

 

It is an issue that has been in the public domain for some time, and is likely to feature at the upcoming Pacific Islands Forum meeting again. So what new information do these reports bring to the table?

 

The World Bank report includes a survey of households in Fiji and Tonga.

Over 900 households participated. The main results showed that:

 

-the amount of resources received in these countries is significant. In Tonga, over 90 percent of households surveyed received remittances in comparison with 43 percent of households in the Fiji sample;

 

-Tongan households receive an average of US$3067 in comparison with US$1,328 in Fiji;

 

-the per capita figure was US $370.88 in Fiji, which is 6.2 percent of the GDP and 8.3 percent of exports.

 

-In Tonga the per capita figure was US$753.02, which is 41.8 percent of GDP and 152 percent of exports

 

-in Fiji 79 percent of those who had received remittances had saved in comparison with 62 percent of those who had not. In Tonga the figure is 59 percent compared to 52;

 

-in Tonga there is evidence that migration and remittances tend to increase income from non-wage sources, such as business or farm income. This means households with migrant members are able to direct resources towards business activity, through what it calls “transnational corporations of kin.”

 

The CIS has some concerns about how remittances are being spent though, saying it’s mainly on replacing local foods with imported packaged food and beverages.

It says only a negligible share of remittances goes to investment and economic development.

 

That’s okay, says the World Bank report’s lead author, Dr Manjula Luthria.

“How they spend their income is almost a secondary question. If it goes into investment, great, but even if it goes into consumption, that’s what the poor do, they spend most of their income on food and housing and then when they reach the next stage you expect it to go into health and education, and then when there’s some left over, and more importantly, when the business environment allows it, they would put some into investment.”

 

Both reports spend some time examining the context for the current debate.

The World Bank has been examining remittances globally, and this report says “There is strong evidence now showing that labor market restrictions are imposing a much greater burden on the global economy than the remaining trade restrictions.

 

“Through general equilibrium models it has been estimated that a complete and free movement of labor generally would double global incomes whereas a feasible amount of labor mobility would increase gross wage income worldwide by US$772 billion in 2025.”

 

The World Bank report examines population trends in the region, saying its estimates suggest that over 370,000 people in Fiji, 279,000 in Solomon Islands and 129,000 in Vanuatu would not be able to find formal sector employment in their countries by 2015.

 

“The situation is pretty grim even now,” says Dr Luthria.

 

“Formal sector employment is very low, and with the exception of Fiji, projected to grow very slowly. Those countries with high fertility rates and low formal sector employment will generate the most excess labor and have the greatest demand for overseas employment. The high projected levels of excess supply of labor for the formal sector indicate the enormous challenge that Pacific island country governments have in front of them.”

 

The Bank points to Australia and New Zealand’s aging populations, the strain that is likely to place on their economies, and those countries concerns about the state of their regional neighbors, “If failed states themselves present a security concern for surrounding industrialized nations, then any policy that reduces the fragility of these small states- should be seriously considered.”

 

“What Pacific Islanders need right away…is to explore as many different avenues as possible to allow them access to productive employment and the opportunity to create an economically safe future for themselves and future generations.”

 

It also reiterates many arguments put before the Australian Senate Enquiry into Pacific, as reported in Pacific Magazine earlier at: http://www.pacificmagazine.net/issue/2006/07/01/australia-and-the-pacific

 

For the Centre for Independent Studies (CIS) however, there are other considerations.

It says Pacific Islanders should continue to be welcomed as long term immigrants to Australia and New Zealand. “But the experiences of Pacific migrants in Australia and New Zealand show that integration becomes more problematic as selectivity is diluted. A guest worker scheme should not move away from proven immigration models.”

 

The report says “In New Zealand they (many Pacific Island migrants) remain geographically segregated into the second and third generations. Most live in highly concentrated communities in Auckland…Pacific Islanders are also highly concentrated in a few low skilled occupations.

 

“The absence of skills and access to welfare appear to be key factors in the difference between the behavioral characteristics of Pacific Islanders in Australia and New Zealand.”

 

And in a theme common to much of the CIS’s work, report authors Helen Hughes and GS say the World Bank’s “pressure on developed countries to accept more immigrants, regardless of costs and benefits, follows its abandonment of the key role of growth in development in favor of welfare, including the international redistribution of income through aid.”

 

They believe Australia’s agricultural industry should look first to unemployed rural aboriginal communities as potential workforce. “Fruit picking and packaging are frequently the best points of entry into the workforce for poorly educated Aboriginal men and women without work experience.”

 

Similarly, Hughes and Gaurav Sodhi write that in New Zealand, “The stubborn inertia of Pacific Islander unemployment could be corrected by policy reforms. Guest workers would not be needed if those unemployed and those not in the labor force but able to work were recruited.”

 

 

Among the specific recommendations made in the World Bank report is a review of the transaction costs of remittances into the region.

 

It says remitting NZ$100 (US$68) to Tonga through channels other than the ATM costs 25 to 30 percent of the amount remitted. Using non bank financial institutions, remitting earnings from Australia to Fiji, Samoa, Tonga and Vanuatu costs between 10 and 20 percent of the amount remitted.

 

These transaction costs are much higher than those faced by remitters in other parts of the world says the World Bank.

 

“A reduction in the transaction costs of remittance transfer in the Pacific could translate into significant additional amounts of income received, especially for the poor, given the size of remittances flowing into the Pacific.

 

“Lowering of costs would also encourage people to use formal rather than informal channels, improving reporting.”

 

The Bank believes the Canada Caribbean agricultural workers scheme offers much guidance to policy makers in the region today.

 

“A scenario of both skilled and unskilled moving in a circular fashion, generating financial flows as well as serving as conduits of social change, is likely to be the most development friendly (model) for the Pacific.”

 

And the report recommends there should be a series of small scale pilot projects to test the feasibility. And while acknowledging the “devil is in the detail” it suggests to be economically viable for visiting workers, their tax rate in Australia would need to be reduced to 13 percent (from the current level of 29 percent), with employers bearing some of the travel and other costs.

 

The Center for Independent Studies questions some of these assumptions, saying

“The World Bank’s estimates of additional hourly costs of 1.30 to 7.50 (for insurance, benefits) seem optimistically low.”

 

The Bank says a pilot scheme would also assist in determining a realistic model for administration, cost sharing and regulation of such a scheme in the longer term.

 

One of the criticisms of the program articulated in the CIS reports is fear of overstaying, which asserts that once islanders compare their home wages with those in Australia and New Zealand, there are huge financial incentives for them to overstay.

 

The World Bank counters by saying “experience shows the fear of overstaying is greatly exaggerated. Less than 1.5 percent were listed as going AWOL in 2004.”

 

The CIS also has concerns about what would be required to stop overstaying, saying “An authoritarian regime would be a high price to pay for a guest worker program not to spill over into illegal long term migration.”

 

So while the World Bank advocates the setting up of a pilot program to test some of these issues, the CIS urges both Australia and New Zealand and the Pacific island governments to go back to the root causes of unemployment and lack of economic opportunities, rather than set up a system “that may further delay policy reforms.”

 

“The often cited high governance costs of the Pacific Islands are not inherent but result from a new form of colonization by international organizations that have created jobs for their staff by turning the smallest islands into nations with governance structures that absorb large volumes of aid without leading to any productive outcomes.

 

“(in the case of PNG) uncontrolled migration to Australia is already occurring on a small scale across the Torres Strait. It could become a major flow, along with crime, arms and drug smuggling, if Papua New Guinea’s policies do not change and economic stagnation persists.”

 

For Hughes and Sodhi, “productive employment in farming, manufacturing and services must be created in the Pacific if the stagnation of the last 30 years is to give way to rising living standards.”

 

Meanwhile in Vanuatu, the World Bank is already discussing specifics of a pilot scheme with a willing audience.