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Forced displacement is at historic levels as a result of global conflict and crises. Meanwhile economic migration—a known driver of development—has been demonized as part of the backlash against globalization. As nations work toward the Global Compacts on Migration and on Refugees, governments and international agencies are struggling to respond to the scale of need and the polarization of attitudes.
First and foremost, the impact of migration is a policy choice: With the right policies, migrants and refugees can fuel economic growth in both the countries they live in and leave behind. CGD brings rigorous research and evidence to these contentious political issues and designs policy approaches that enable migrants, refugees, and their hosts to prosper.
As more than 1,900 corporate leaders convene in Davos this week to “create a shared future in a fractured world,” they should prioritize the well-being of the 22.5 million refugees around the world. In a joint report with the Tent Foundation, I highlight how global businesses can move beyond corporate social responsibility to engage refugees in their core business, especially by including refugees in hiring and supply chains. As market leaders, policy influencers, and innovators, these businesses have assets that are not found in traditional humanitarian response and that can shape the broader environment for refugees’ access to labor markets.
The nature of forced displacement, and the political disruptions it has contributed to, has made the imperative to act more pressing than ever. Refugees have been displaced for an average of 10 years; for those displaced more than five years, the average jumps to over 21 years. There is a severe gap in funding for humanitarian response, and more than 84 percent of the world’s refugees live in developing regions, where governments are already struggling to meet the needs of their own citizens. Creating greater opportunities for the displaced to provide for themselves and their families is essential to any sustainable solution.
One of the most promising entry points for global businesses is including refugees in hiring and supply chains. As employers and buyers at the helm of extensive supply chains that reach deep into local markets, global businesses can play an important role in creating demand for refugee labor, products, and services. Commitments to support refugees should take place in the context of broader policy and investment initiatives that also benefit local communities, which are often experiencing high unemployment, flat or falling incomes, and other vulnerabilities. A notable example is IKEA’s partnership with the Jordan River Foundation, employing Syrian refugees and Jordanians to make hand-woven rugs, textiles, and other products which will eventually be sold in IKEA stores everywhere. Also in Jordan, Airbnb has launched a livelihoods initiative where refugees can advertise services like tours and other local experiences.
The potential for such efforts is largely dependent on conducive business environments and rights for refugees to work and own businesses. Host governments value their partnerships with global businesses—not only for the trade, investment, and services they offer, but also for their expertise and insight. As CEOs meet with government leaders at Davos, they should use the opportunity to forge collaboration across public and private sectors, including advancing policies that facilitate trade and investment and the economic inclusion of refugees. Donors, too, need to remain engaged, recognizing the public good provided by refugee-hosting countries and the support refugees often need to succeed, such as language classes and job matching services.
Global businesses can also lead the way on championing evidence on the economic benefits of refugee inclusion. Contrary to widespread misconceptions, refugees quickly become economic contributors to their host countries. Even in the short-term, refugee influxes typically have little to no effect on average wages or labor rates, and in some cases has caused wages for some native workers to rise by encouraging occupational upgrading.
Giving refugees the right to own a business can also bring substantial benefits to host communities. A recent study found more than 10,000 Syrian-owned businesses in Turkey, each employing 9.4 people on average. And what’s more, Syrians have invested more than $330 million in the Turkish economy since 2011.
There is no shortage of skepticism about whether global leaders at the World Economic Forum (WEF) are serious about addressing the needs of the poor and vulnerable. Visible progress through core business commitments would send an important signal that refugees are a crucial investment, not a cost—and that corporate leaders are committed to taking action towards, not just talking about, solutions that deliver social and economic impact.
Yesterday, the German Social Democrats (SPD) voted in favour of pursuing in-depth coalition talks with Angela Merkel’s Conservatives (CDU). Although the chancellor’s battle for political survival is far from over (as the final coalition agreement will have to be backed by the majority of SPD’s 443,000 party members), it is likely that we will see a remaking of a grand coalition. Here we look what that would mean for Germany’s leadership on development.
After coalition talks for a “Jamaica-coalition” with the Greens and the Liberals failed in mid-November, nearly four months after the elections, Angela Merkel’s CDU hadn’t formed a new government. Having turned to the SPD since, with which she governed twice already, and which initially rejected another term of a grand coalition, it appears as if they’ve now reached a preliminary coalition agreement for another grand coalition which does look promising for development. However, for the actual in-depth negotiations, we have four policy recommendations which should find their way into the final coalition contract:
Continue to welcome migrants and improve integration—this will be a win-win for both migrants and Germany
Use increased defense spending for German support for UN peacekeeping
Continue to invest in global public goods for the environment through subsidies for renewables and energy R&D
Use the billions of freed up ODA due to decreasing refugee hosting cost to increase funding for multilaterals
Is Germany’s leadership on migration under threat?
Germany is a development leader, mainly due to its migration policy and its openness to refugees and asylum seekers, as this year’s Commitment to Development Index (CDI) has demonstrated. Migration and integration are dominant themes in Germany’s political discourse, which is not highly surprising after Germany’s intake of a very high number of refugees and asylum seekers in 2015. As a consequence of this and the concomitant success of the right wing populist party AfD entering parliament for the first time, the CDU has now taken less liberal positions on migration. The main battleground during coalition talks was how many additional refugees Germany should accept in the coming years. The final preliminary coalition agreement states that the number of refugees should not exceed 220,000 annually (this excludes labor migrants and the potential additional people seeking asylum from persecution, which cannot be capped for constitutional reasons). Even adding labor market migrants on top, this would be a massive decrease from the record 2 million immigrants that came to Germany in 2015 (we calculate this to be equivalent to “880,000 poverty weighted migrants” from the extremely poor countries, because of the many refugees coming from poor Syria).
In order to limit the numbers to this cap, several measures are listed. These include:
Better international development cooperation
Increased humanitarian commitment
Bigger commitment to international peacekeeping (incl. international police missions)
Fair trade and agricultural policy (fair trade deals)
Intensified contributions to the protection of the climate
Restrictive arms exports
We welcome all these commitments and measures, which are in itself are all part of our Commitment to Development Index (CDI). However, the fact that these policies are linked to the reduction in the numbers of migrants is problematic:
The preliminary coalition agreement aims to set up a commission to address the refugee crisis “root causes.” A recent paper by CGD’s Michael Clemens finds that aid spending is not generally in line with the root causes rhetoric and that the sectoral split of aid to migrant-origin countries is no different to that of aid spending other countries. Also, they find aid can only deter migration, and improve growth, employment, and security to a limited degree. As research suggests, people are more likely to migrate when their country of origin gets richer, contrary to the belief of many donors that using Official Development Assistance (ODA) to improve living conditions in sending countries will deter people from migrating. Donors should use aid not to deter migration but make it better for both host country and migrants.
The coalition agreement leaves the backdoor open for welcoming labor migrants (as they are not included in the suggested cap of 220,000 migrants annually) which an aging society like Germany could benefit from. While the preliminary coalition agreement presents several additional measures to support economic performance in Germany, research suggests that using the potential of its refugees and migrants can be beneficiary to the economy. Therefore, the artificial distinction between labor migrants, which according to the preliminary coalition agreement should be attracted to the German labor market, and asylum seekers and refugees is contradictory. Unlocking the potential of refugees to contribute to the labor market and the host state through tax and social security contributions will be beneficial to the host nation, the migrant and the country of origin (via remittances. etc.). We therefore encourage the grand coalition to keep its openness towards migrants, not only to live up to its humanitarian obligations but also to support its labor market with both low- and high-skilled workers.
One group of skilled workers desperately in demand are nurses and caregivers, which is reflected in the fact that the care sector is discussed with a whole paragraph in the preliminary agreement. By 2030, the German health industry is estimated to lack around 3 million skilled workers. One step towards a long-term, better balanced and sustainable health sector would be the introduction of a Global Skills Partnership. Pilot projects could combines training for nurses or caregivers funded by a donor country (Germany) with the permit to work temporarily in this country. Such mechanisms benefits both Germany and the chosen country of origin, decrease pressure on health systems in aging societies and equip migrants with skills and experience.
Further, the coalition aims to reduce and limit arms exports. As the CDI 2017 demonstrates, this is an important step as Germany has room for improvement in restricting arms exports to poor and undemocratic countries. In the past, it has sold arms to countries which are supporting sides in the Yemeni Civil war. Its proposed export ban to participants in this conflict is a step into the right direction. Also encouraging are the commitment of both the CDU and SPD to work towards a joint European strategy on arms exports.
Germany should step up its commitment to the environment
Experts predict that it is unlikely that Germany will meet the 2020 Paris agreement of reducing emissions by 40 percent. The new coalition is committed to close the gap between current emissions and their 2020 pledge as quickly as possible. But, even though it is shameful that a rich country like Germany will not meet its pledge and expects developing countries to meet theirs, Germany only emits 2 percent of greenhouse gases globally and might be in a better position to provide global public goods to lower greenhouse gases. The coalition wants 65 percent of energy to come from renewables until 2030, mostly through photovoltaics and offshore wind energy. We hope that this will be achieved through renewable energy subsidies, which are a global public good, and many economists agree that high solar energy subsidies in Germany have produced net social benefits for the world. A recent study estimated these benefits to be around $18.8 billion. The same study quantified the effect of Germany’s national subsidies for solar adoption globally and found that roughly a third of solar adoption due to technical improvement result from German subsidies. Most of the solar adoption occurs outside of Germany—those spillovers are classic global public goods and beneficial to developing countries.
Better international development cooperation is welcome, but what does it mean?
Germany will have to massively ramp up overseas development spending, and fast, as the Coalition aims to continue to meet its 0.7 percent commitment, the absolute value of which will only increase due to robust GDP growth at 2 percent. But more importantly, the 0.7 percent target was only met for the first time in 2016, because of a rapid increase in refugees hosting costs; Germany spent $6.2 billion (or 25 percent) of all their ODA in 2016 on refugee hosting costs. In order to maintain the 0.7 target when only 220,000 refugees arrive, overseas development assistance would have to increase rapidly. There is a unique opportunity to redirect this $5 billion or so to multilaterals: the preliminary coalition talks frequently mention better aid, more international cooperation and so on. Yet, Germany only spends about $5 billion (or 20 percent) of all ODA on multilaterals (international average: 29 percent of all ODA is multilateral). Germany’s own development agency will likely be overwhelmed by such a rapid increase in funding. All else being equal spending through multilaterals has advantages: one can piggyback on the existing infrastructure of multilaterals, that have the economies of scale. And a recent review paper on multilateral vs. bilateral aid found that multilateral spending is less politicised, more demand-driven, more selective in terms of poverty criteria, much less fragmented and is better in terms of global public goods provision. Germany should live up to its repeated calls for international cooperation that can be found in both party manifestos and the coalition agreement, and channel the freed up budget for refugee costs to multilaterals.
What’s next for the coalition agreement?
After last night’s SPD party congress, the conservatives and social democrats will now start negotiating on the final coalition deal that has the potential to have a big impact on development. Still, a final agreement and ultimately a new government could be in jeopardy as the leader of the SPD initiated a game of chicken: the party’s president decided that its members should have the final say about whether or not to accept the coalition agreement, and if the conservatives do not make sufficient concessions in the negotiations ahead, and the party members reject the coalition agreements, there will likely be re-elections. However, experts believe the party base will agree to the coalition agreement given that in 2013, 78 percent of party members voted for a renewal of the grand coalition. If Germany indeed has a new government by Easter, it should ensure to continue its path towards being a global leader on development and the provision of global public goods, as outlined in the preliminary coalition agreement.
As world leaders convene in Davos this week, the global migration crisis finds itself buried in the agenda. One of the most urgent issues of our time, it will remain one of the most urgent issues for generations to come if international leadership fail to tackle human mobility with pragmatic, fact-based policy tools. Yet few agree on how to make shape those tools, and even which tools are needed.
The majority of the world’s more than 244 million migrants move via regular pathways, such as work visas for high- and low-skilled labor, student visas, and more. But the portion of migrants who do move irregularly is no less important. Irregular migration may in fact be even more critical, particularly given demographic projections anticipating the addition of 800 million young, energetic workforce participants in sub-Saharan Africa alone by 2050.
This pressure, coupled with the aging populations and sometimes shrinking workforces in more advanced economies, essentially guarantees rising migration pressure. Migration is no longer a question of “if” but rather “how”—whether it will happen on terms that harness the potential of young migrants, or waste it.
There is a crack at the heart of international discussions for new legal channels of labor mobility. Many migrant destination countries perceive their self-interests to be best served by higher-skilled migration; many migrant origin countries are highly suspicious of higher-skilled migration, and see their self-interests best served by relatively lower-skilled migration, if any at all.
Innovation is imperative. Specifically, in new kinds of legal migration. My proposal? The Global Skill Partnership idea, or GSP. A GSP is a bilateral agreement in which the destination country gets directly involved in shaping the skills and training of potential migrants in the country of origin, prior to migration. This is a mechanism to sensibly share the costs and benefits of skilled migration. Destination country employers and governments provide technology and finance for vocational training of potential migrants, in exchange for migrants’ access and placement at the destination. This is paired with training of other workers who do not migrate and instead remain in the origin country.
This presents immense potential benefits across the board. A GSP can ensure destination countries receive migrants with the skills to integrate quickly and contribute maximally. It enables technology transfer to countries of origin, strengthening the workforce without significant cost or loss of all skilled workers. And it ensures migrants get legal, regular opportunities to change their lives and the lives of their children.
With this innovation must come a commitment to pilot, test out, and adapt from trial and error, not just GSPs, but the manyotherinitiatives meriting consideration. Such a commitment should be made not only by states, individually and/or bilaterally and multilaterally, but also explicitly included in the Global Compact on Migration. The ongoing, United Nations-led Global Compacts process is a rare window of opportunity for the world’s leaders to negotiate commitments toward safe, orderly, and regular migration.
Davos can and should also be a platform to continue the important dialogue happening around the Global Compact process, and dialogues beyond those within UN-led efforts.
One of the mysteries of development economics is why more people in subsistence agriculture don't migrate to cities where incomes are much, much higher. New data suggests one answer: when they move, their incomes may not go up as much as we thought.
Poverty in poor countries is largely a rural phenomenon. The original engine of development in Arthur Lewis's Nobel-winning work in the 1950s was the movement of people out of farming in pursuit of higher urban incomes, and this same movement away from agriculture remains a focus in work on structural transformation today (see CGD work by Peter Timmer and Selvyn Alkus, and others like Margaret MacMillan and Dani Rodrik's here).
The agricultural productivity gap—or the ratio of value-added per worker in other sectors compared to agriculture—is huge. A couple years ago, Doug Gollin, David Lagakos, and Michael Waugh published a paper in the Quarterly Journal of Economics systematically documenting these gaps across a sample of 151 developing countries, and found that on average, value-added per worker in other sectors was roughly three times higher than in agriculture.
Click on citations in the legend to view the cited paper.
Economists see income gaps and begin to tear up at the inefficiencies and arbitrage opportunities. As Gollin et al. wrote, if we take these gaps at face value they suggest that “by reallocating workers out of agriculture, where the value of their marginal product is low, and into other activities, aggregate output would increase even without increasing the amount of inputs employed in production.”
Maybe farmers are just different
Perhaps the most obvious explanation for income differences between farmers and non-farmers is the difference in human capital between workers in each sector. And it's true, education differences are big. But when Gollin et al. try to adjust for these schooling differences—allowing not just for differences in years of schooling, but also for actual learning measured by literacy—the agricultural productivity gap only falls from about 300 percent to about 200 percent. It's still huge.
If the potential income gains are so big, why doesn't everyone move to the city?
Enter a new paper, presented at the American Economic Association conference in Philadelphia last weekend, by Joan Hicks, Marieke Kleemans, Nicholas Li, and Ted Miguel, which attempts to resolve this mystery.
Hicks et al.’s data allows them to go a couple steps further. They measure cognitive ability more carefully than most economic surveys, and find higher-skill farmers select into migration. But perhaps more interestingly, they focus on two long-term longitudinal data sets that track migrants over many years as they move jobs between sectors. This allows them to compare the same worker—with the same education, cognitive skills, and other possibly unmeasurable attributes—in different sectors to estimate the agricultural productivity gap.
What they find is, essentially, nothing.
In Indonesia they find individuals earn about 8 percent more working outside agriculture than from farming, and in Kenya about 6 percent more. When they focus on the rural-urban divide rather than farming versus non-farming, the gap is almost precisely zero in Indonesia and about 17 percent in Kenya. Perhaps 17 percent is not trivial, but it's a very far cry from 200 to 300 percent.
Ruminating on the intellection implications for economists, Dietz Vollrath has an insightful blog post discussing the Hicks et al. paper and the broader literature, provocatively titled “The Return of Peasant Mentality.” As he notes, the modern assumption in development economics is that rural farmers are just like everyone else, i.e., rational maximizing agents, just stuck in a more challenging context. The Hicks et al. evidence suggests instead that they self-selected on measures of cognitive skills. Would we find the same if we measured risk aversion and other psychological attributes? Maybe, as Vollrath speculates, peasants really are different, as an earlier era of development scholars assumed.
So should policymakers turn away from rural-urban migration as an anti-poverty tool? (No.)
The “No Lean Season” initiative in Bangladesh has garnered a lot of attention recently for showing the large welfare benefits from encouraging rural-urban migration. A randomized trial by Gharad Bryan, Shyamal Chowdhury, and Mushfiq Mobarak offered individuals in rural Bangladesh an incentive of about $8.50 to migrate to the city for work during the hungry season. That relatively small incentive induced about 22 percent of people to move temporarily. The result is that family members who stay behind increase consumption by 30 to 35 percent, and eat 550 to 700 more calories per day.
There's a lot of space between 300 percent and zero. Even if the agricultural productivity gap overestimates the gains from moving out of agriculture, the returns to rural-urban migration may still be significant—and well worth promoting through public policy.
Bryan et al.’s RCT in Bangladesh also provides interesting answers to why more people don't migrate spontaneously: they document important roles for risk, subsistence constraints, and for learning about the returns to migration—which induced remigration for years after the treatment incentives are removed once people have gone and seen what they can earn.
Reproduced from Bryan, Chowdhury, and Mobarak (Econometrica 2014)
There's also some evidence that the returns to more permanent (as opposed to the seasonal migration in the Bangladesh study) may be higher in other places.
While Hicks et al. find very little in Kenya and Indonesia, an earlier study in Tanzania by Kathleen Beegle, Joachim De Weerdt, and Stefan Dercon find that rural-urban migrants experience consumption gains of around 30 percent (still a far cry from 300 percent). And while the results are slightly less clean for a variety of data reasons, Alan De Brauw, Valerie Mueller, and Tassew Woldehanna find much, much bigger gains from movement when tracking rural-urban migrants in Ethiopia over many years.
At a bare minimum though, this new evidence from Kenya and Indonesia suggests policymakers should be reluctant to assume that leaving the farm is better for people than they realize, and attempt to coerce movement. Here Hicks et al. invoke Tanzania's disastrous forced villagization policy of the 1970s—hopefully not a policy with many contemporary analogs, but still worth ruling out. And they also highlight that positive selection into migration (i.e., movement of higher skilled people, even on unobservable dimensions) reinforces the tendency for this ladder out of poverty to leave the least fortunate behind, which could be read as a plea not to forget rural development and social protection programs during the structural transformation process.
Should this dampen your enthusiasm for international migration? (Also no.)
While poor farmers in many developing countries are “free,” in the narrowest legal sense, to migrate to urban areas and search for a non-farming job, that's not true for international migrants, who face walls and fences and police demanding papers. With those “frictions,” it makes sense that international income gaps are larger and somewhat more robust.
In one of my favorite CGD papers, my colleagues Michael Clemens and Lant Pritchett together with Claudio Montenegro from the World Bank compare immigrants in the US to observationally identical workers (i.e., same education, age, etc.) in their home countries, and find a lower-bound estimate of an earnings increase of over $13,000 per year in PPP dollars from living and working in America.
The same biases that Hicks et al. identify in rural-urban migration apply internationally—higher-earners select into migration—but once that's accounted for, the returns remain large. Using a lottery of Tongans admitted to New Zealand, David McKenzie, Steven Stillman, and John Gibson show that naive non-experimental estimates of the income gains from international migration overstate the truth by twofold. Nevertheless, they show that randomly selected migrants still experience a 263 percent increase in income (!) one year after migrating.
In sum, there is a risk that “why don’t they just move” becomes the “let them eat cake” of 21st-century development economists. The Hicks et al. paper is perhaps a good reminder to focus on removing the barriers to people’s movement, rather than thinking we know what’s best for them. While the gains to migrants in Kenya and Indonesia appear disappointing, the centrality of structural transformation to poverty reduction in history remains uncontested. It’s not always a simple story though, and more research like this will help us understand that messy process better.
Thanks to Doug Gollin for long and patient answers to my questions, to Michael Clemens for helpful suggestions, and to Divyanshi Wadhwa for research assistance.
Happy New Year, and welcome to 2018 from all of us at CGD.
Here at CGD, we’re always working on new ideas to stay on top of the rapidly changing global development landscape. Whether it’s examining new technologies with the potential to alleviate poverty, presenting innovative ways to finance global health, assessing changing leadership at international institutions, or working to maximize results in resource-constrained environments, CGD’s experts are at the forefront of practical policy solutions to reduce global poverty and inequality.
Watch our video to hear from our experts directly, and get an in-depth look below at their thoughts on the 2018 global development landscape:
The role of international cooperation
“We’re in a difficult time for development policy. People feel as if we’re in competition with the developing world, and I think we have to get back to recognizing that we have shared problems that we need to solve together. The premise of international development cooperation—now rightly enshrined in the Sustainable Development Goals—is that we are in this together: we all benefit from shared prosperity, openness, trade, security, values, rights, and justice. We are in danger of seeing the world as zero sum—in which improvements in some parts of the world are wrongly believed to be at the expense of success elsewhere. If we allow this idea to take root, it will undermine support for development cooperation, and take us in directions that erode global cooperation and the institutions that protect and sustain our shared security and prosperity.”
The effect of transitioning away from aid: asking the right questions
“I think 2018 is going to have to be about countries transitioning away from aid, and as a result it’s going to have to be about how we invest limited resources to get the best return for that investment. What happens to social spending commitments towards global health priority areas such as vaccinations and infectious diseases, as Ministries of Finance are increasingly asked to allocate their own domestic resources to replace diminishing donor funds? How do national health insurance funds procure pharmaceutical products and other health commodities as LMICs leave purchasing clubs such as Gavi and GFATM whilst having to deal with the growing burden of chronic diseases such as diabetes and cancer? How can technological and organisational innovation address the gap left by departing global purchasing arrangements?
What are the role and responsibilities of norm setting agencies such as the WHO in shaping resource allocation at national level as countries commit to and implement universal coverage for their populations? When are aspirational targets as the ones set through standard treatment guidelines, disease specific norms or the Essential Medicines List, justified and when do they distort local spending priorities and aggravate inequalities?”
New leadership, limited funding: an opportunity for global health aid
“In 2018, I’m looking forward to seeing economists more deeply embedded in all things global health. First, Peter Sands takes the helm as new executive director at the Global Fund to Fight AIDS, Tuberculosis and Malaria where the focus needs to be value for money—more impact, more rigorously measured, for the same or less money. It’s not just the right thing to do, it’s also a requirement for a portion of future DFID funding. To get this done, better economics should be deployed to inform resource allocation within programs, implement rigorous performance verification and evaluation approaches, and select most cost-effective diagnostics, drugs, and devices for purchase.
Second, at the World Health Organization (WHO), newly elected Dr. Tedros is finalizing his General Program of Work, a 2019-2023 plan that governs the rest of his tenure as Director-General. Faced with many demands and conflicting priorities from its member countries, WHO leadership could benefit from a chief economist (more on this here and here). The goal? To help prioritize demands amid scarce funding, to promote value for money in all policies, and to make the critical link with ministries of finance.
Third, with US tax reform passed, global health aid—like the rest of discretionary spending in the US budget—may face cuts, despite bipartisan support. In the UK, there’s also an uncertain outlook. It’s a clear case of ‘hope for the best, plan for the worst.’ And that’s where the dismal science can contribute: planning for these uncertainties and contingencies, and maybe finding some opportunities for efficiencies along the way. Look to recent work on aid transitions, priority-setting, domestic resource mobilization, innovative financing, value for money, fiscal policies for health, financing global public goods, and our forthcoming work on rationalizing future global health procurement should provide some fodder for policymakers to consider.”
“In 2018, I’m very much looking forward to continuing to explore China’s emergence as a leading development actor. Increasingly, this will mean defining a leading role on international policy commensurate with China's role as a leading development financier globally. In settings like Davos and institutions like the World Bank and the IMF, Chinese officials will inevitably be more prominent in 2018 and will just as inevitably come under increasing pressure to align Chinese policy on issues like sustainable lending with international norms. All of this will likely occur against a backdrop of US retrenchment in these multilateral fora.”
“I’m really excited about the relationship between technology and development, and to begin to examine how we can master the challenges that come with integrating a set of powerful new technologies and ensuring that they deliver the best options for poor people everywhere. Technological innovation has been a driving force of development and this continues to be the case. The current revolution in digital technology, big data, robotics, and artificial intelligence holds enormous promise to deliver development services more effectively and efficiently. However, these forces will need to be harnessed to ensure that the benefits flow to all segments of society in the developing world and the ‘losers’ from this transition are supported in ways that are economically, socially, and politically sustainable. This is a fertile and urgent area for conceptual and empirical research to underpin better policymaking by developing country leaders and the international community.”
“In 2018, I’m excited about expanding our research on the policies that will most effectively help refugees and migrants integrate into their host communities. At a challenging time for migrants and refugees, we are focused on analyzing and generating solutions that can simultaneously advance outcomes for refugees, migrants, and host communities. One of our main projects will highlight policies and programs that benefit sending and receiving communities, as well as emerging innovations such as the Global Skill Partnership. Building on our work on refugee compacts, we'll expand our work on how to achieve impact with new financing mechanisms that support developing countries, which host 86 percent of the world's refugees, to deliver services to refugees and citizens. A key part of this will be research on how to increase refugees' access to labor markets and more deeply engage the private sector, so refugees can become self-reliant by finding jobs and starting businesses—and spurring local markets in the process.
Latin America’s elections: choosing the right leadership to restore peace and prosperity
“In 2018, we will witness a huge cycle of presidential elections in Latin America. My big hope for the year is that the citizenship chooses the right leadership to be able to face the upcoming challenges. The recent elections in Chile (December) and Honduras (November) will be followed by six Presidential elections in 2018: Colombia, Mexico, Brazil, Costa Rica, Paraguay and, potentially, Venezuela. This highly charged electoral cycle comes at a time when populations’ discontent with the results of democracy is on the rise as reported by the reputable poll Latinobarometro. This change in attitude follows the significant deterioration in Latin America’s economic and institutional quality indicators in recent years, reflecting both the end of the period of super high prices of commodities exported by the region and the outburst of corruption and crime in many countries. In this environment, the risk of electing populist (notably in Mexico) or authoritarian leaders (notably in Brazil) is high. Populism and authoritarianism are not strange to Latin American history and their disastrous results on economic and social prosperity are extensively documented (with Venezuela’s recent experience being the latest example). The incoming elections will test whether Latin Americans can avoid repeating the painful mistakes of the past and will choose governments able and willing to put in place the needed reforms to restore economic growth and sustainably enforce the rule of law.”
“In 2018, what I would like to see is the gender gap in financial services reduced. The gender gap in financial services is stuck at a 7 percent gap globally and a 9 percent gap in developing economies. According to the latest data, while the number of bank account holders has increased globally between 2011 and 2014, the gender gap has not shrunk. In 2018 we can do better. So far, a lot more attention has been paid to particular constraints women face in accessing financial services, than to what women actually want from financial products. Focusing on women potential clients as a distinct market segment is a first step. Second, in addition to “know your customer requirements,” the industry should have “know your bank standards” as well, and examine potential gender biases, explicit and implicit, in the delivery of financial services. Banks should examine and correct internal gender biases. Encouraging signs include the commitment of development agencies (including an 8-agency gender data partnership coordinated by Data2X and GBA) and some banks to invest in data, both supply and demand-side, and in testing innovative financial products and delivery systems to increase women’s access to financial services (including experimental evaluation work we at CGD and partners are completing this year). These and other partnerships should help shrink the gap in the short term, especially if large private sector banks globally also act.”
On International Migrants Day, we should remember that refugees are not a burden to be shared. Here we suggest innovative finance mechanisms to pay for that investment without putting pressure on public finances, instead enabling refugees to develop and apply their skills, integrate effectively, and improve their overall contribution. Seeing refugees as an investment, and not as a burden, unlocks huge potential benefits for the countries that host them as well as for the refugees themselves.
Recent conflicts in the Middle East and Africa have led to unprecedented levels of displacement: UNHCR estimates that about 65 million people have had to flee their homes for fear of their lives. Of these, 22 million have crossed borders, seeking safety and asylum in neighbouring countries or embarking upon a perilous journey to Europe where they hope a better life awaits. As the effects of this “refugee crisis” have reverberated around the West, discussions have turned to how to help the most vulnerable, and how countries can balance their humanitarian obligations against political pressures and far-right hostility.
Underlying these discussions is an assumption that refugees are a cost to society. Refugees are often regarded as a “burden” which European countries are urged to share by accepting their “quota,” and aidstates in Europe are accused of waving through asylum-seekers so that they become someone else’s problem. This idea is pushed further by institutions hostile to refugees, who point to strained public services, and focus on costs of processing and housing refugees as they arrive. Hence the rapid rise in the number of refugees being described as a “crisis.”
These upfront costs do exist. Refugees often arrive destitute, sometimes in need of counselling and with little knowledge of the local language or culture. It may take some time before they are able to become net contributors. But taking a longer view, there is no reason to view refugees as a cost: they can be a benefit to their host countries, not a burden. Spending money on refugees is an investment, not a cost.
Many refugees are well-educated—for example, it is estimated that nearly half of all Syrian refugees to enter Europe have a university degree. Many arrive with professional qualifications, potentially saving their new country the cost of training people from scratch to become nurses, engineers or other professionals. In the UK, training a doctor from scratch costs roughly £250,000, whereas certifying a refugee doctor is estimated to cost only £25,000—a tenth of the cost. Unlocking these skills will benefit society both directly and through their tax contributions. And in general, refugees are young. According to available UN data, only 4 percent of refugees in asylum countries are over 60 years old, an estimate which is also borne out by US and Canadian data.
The relative youth of the refugee population is a huge advantage to the advanced economies: an increase in the number of workers spreads the cost of caring for the elderly, alleviating the burden on the public finances caused by an aging population. This is a particular problem in the West, where low fertility and longer life expectancy are driving up the ratio of those above retirement age to those under it. Accepting refugees may not significantly change this trend, but the change would be in the right direction, and give governments more leeway in adapting policies to address an older population.
The long-term potential of refugees is compelling. But whereas these benefits take time to be realised, and as refugees find employment and learn how to navigate an unfamiliar environment, the costs can be immediate. Finding accommodation and providing integration services is costly, and while evidence suggests refugees will pay more into treasuries than they would take over the long term, benefit usage can be high on first arrival. These costs loom large for communities and governments, even if refugees produce more than enough value to cover them in the long term. In order to unlock these gains, a way to address this temporal mismatch is needed.
Finance is a time machine: shifting value across time periods is one of the key roles of finance. So long as the long-run benefits of resettling a refugee outweigh any short-run costs then with the right structure, private investment can be attracted to cover the short-term costs. The increase in national tax revenue can be harnessed to address the increase in services used locally. And a well-designed instrument can give investors the incentive to find out what works best for resettlement, by linking returns to outcomes.
The potential for a financial instrument to improve social outcomes while generating a return for investors has been demonstrated by the recent success of the Peterborough Prison Social Impact Bond. By linking the return on investment to the rate at which ex-prisoners reoffend, the pilot scheme reduced recidivism rates by 9 percent, enough to beat the target of 7.5 percent, thereby triggering a healthy payment to investors. Actors in the scheme had the incentive to find out what worked, and put pressure on service providers to adopt those lessons.
We believe that a similar instrument is needed for refugee resettlement—one that links the speed and success of integration, and extra value generated, with the return that investors obtain. This would provide an incentive to find out how to enable refugees to integrate quickly and move from needing support to making a contribution to their new country. What accreditation is needed for the refugee to use their skills? How much should be spent on language lessons, and who should provide them? Answering the myriad questions associated with integration can improve the lives of refugees and generate wealth for investors and society, as well as—most importantly—for the refugees themselves. But while we continue to think of refugees as a burden to be shared, there will be too few people even asking these questions.
Future tax revenue is not the only source of value that could be harnessed to overcome the initial costs. The international community spends vast resources year after year, maintaining refugees as displaced people, often (though decreasingly) in camps where they suffer loss of dignity and autonomy, and must live off handouts of food packages. Until recently, the average time that a refugee was displaced was estimated to be as much as 15 years. That average has dropped in the last few years: not for the good reason that we are finding ways to end displacement, but for the bad reason that the average has been lowered by an influx of new refugees from Syria. The average for refugees who have been displaced for at least 5 years is 21 years. None of us knows how long current refugees will be displaced, but there is no reason to assume it will be significantly less than the previous 15 year average. The resources used to sustain some refugees in such situations over such long periods of time could be better spent on investments to enable them to resettle. If the international community is willing to spend a certain amount of money on supporting refugees, why not support investment in refugees that costs the same but achieves a better outcome for everyone?
By treating refugees as an investment rather than a cost, innovative finance instruments can begin a virtuous circle. Refugees will be able to contribute more to their new communities, and those communities will increasingly recognise the value to them of refugees, broadening the political space for more resettlement. It is neither possible nor necessary to resettle all the 22.5 million people displaced across borders, and other measures will certainly be needed alongside resettlement programmes. But for some refugees, innovative finance to support investment in resettlement has the potential to increase autonomy, dignity, and economic benefits, leading to better results for everyone.
Countries have seized a window of opportunity to address migration realities now and in the future—and next year is crunch time. More than 800 delegates from the United Nations Member States, agencies, nongovernmental organizations (NGOs), civil society, and academia convened in Puerto Vallarta, Mexico, last week for the Stocktaking meeting on the Global Compact on Migration. An ambitious, non-binding process (political, not legal), the Global Compact marks an opportunity for states to commit to new, fresh thinking and renewed assurances around safe, orderly, and regular migration.
What a global compact could mean for development
The Global Compact is a critical process, not just for migration but for global development as well: research and reality show, time and again, that migration unequivocally can grow and stimulate economies in both the origin and destination countries. Attention to and engagement in this process over the next several months will be crucial. The zero draft of the Compact is being written now, and Member States will come to the table beginning in late February for several rounds of negotiations.
While somewhat tepid during meetings in Mexico, Member States indicated they will significantly ramp up their specific asks and articulated requirements once the Compact’s zero draft is out. There is a brief but imperative window of opportunity to ensure the Global Compact is as robust and bold as possible—a goal aided perhaps by the fact that this is non-binding, providing space for more ambitious (while technically optional) language.
Over the course of the Global Compact meetings, a number of Member State interventions championed bilateral agreements, skills and training partnerships, and other new legal migration pathways. All of these avenues are necessary to governing and capitalizing on migration. None of these, as they exist now, can alone provide the migration “solution.” Needed now and moving forward is not only a variety of new migration pathways, but a commitment from Member States and the Global Compact to test out these proposed pathways.
Beyond the economic question, human rights, fair recruitment practices, protection of child migrants, and access to public services in the destination country were all common themes in Member States’ remarks (some more contested than others, such as the debate around health services access regardless of migration status). Some Member States sought guarantees and greater procedural specifics around return and reintegration of failed asylum seekers. Many called for an end to child migrant detention and greater protection to vulnerable migrants, including unaccompanied children.
When innovation becomes necessity: A global skill partnership
As the discussions evolved over the course of three days, the buzzword term “innovation” came up again and again. If the Global Compact is to be a truly game-changing and effective roadmap for states to better manage migration, it will need to commit to innovating.
CGD’s pitch to the Global Compact revolves around the Global Skill Partnership, a bilateral labor agreement where the developed country gets directly involved in shaping the skills of potential migrants in the country of origin, prior to migration. A Global Skill Partnership ensures the mutual benefits are significant: the developed destination country gets precisely the skills in workers it needs to fill labor market gaps, at a lower cost for training in the developing country; the developing origin country receives new technology, training institutions, and skills for local workers (as only some trainees migrate); those trainees who do migrate earn markedly more than they would at home, and send remittances home to grow the local economies at home; and those trainees who do not migrate enter their local economies with new and advanced skills and higher earning potential.
The Global Skill Partnership is one innovation to pilot when Member States raise the need for “international training partnerships.” Talent Beyond Boundaries is one example of seeking to innovate in the skills matching space. There are other innovations which could move toward addressing alternatives to child migrant detention, and others still that move toward a monitoring and accountability mechanism on human rights for people on the move. There are certainly ideas for better and more realistic return and reintegration practices, which warrant at least a trial effort—even if just to identify what doesn’t work so we can ultimately get to what does.
More and better data and evidence—a common refrain in Member States’ remarks—can facilitate innovation. As states call for more nuanced, rigorous, and robust migration data, and more research and attention to root causes of migration, they should at the same time be prepared to consider the necessary policy and program innovations that that data can help inform.
Demographic projections are clear: In the coming decades, sub-Saharan Africa alone will experience a population boom of 800 million workers. What that means: millions of young, energetic job seekers for whom developing country economies simply cannot match jobs. Migration will happen, and innovative proposals like the Global Skill Partnership need to be tested now to be scaled up for the future. Well-managed and pragmatic migration policies are essential, and data and evidence are needed to help states determine what policy changes must happen and at what scale.
Tackling migration with international cooperation
The US decision to pull out of the Global Compact on Migration several days ahead of the Stocktaking in Mexico may have given a boost to the public profile of the conference. While some Member States expressed their disappointment in the decision, many others echoed the US call for respect for state sovereignty, and the non-binding nature of the Global Compact was reiterated throughout the time in Mexico. There was some speculation the United States may continue to contribute, perhaps from the sidelines, on the agreement. Given that the Compact is a political and not legal document, the resulting recommendations and commitments could prove to be a useful, pick-and-choose innovation roadmap for US migration considerations down the road.
The final document is set to be signed next December in Morocco. There are of course no guarantees— early sticking points may include issues like returns and visa overstays, how the monitoring and follow up mechanisms are structured, and how much developed receiving countries are willing to commit to around new legal pathways. Social impacts and questions around integration may have also been bubbling beneath the surface.
For now, the Global Compact is moving ahead with an ambitious agenda for tackling migration, providing Member States the tools and ideas for building and improving their own migration governance frameworks, and fostering the dialogue and considerations necessary to drive bilateral and multilateral cooperation on migration policy and procedures, both in the short-term response and in long-term planning. Migration, by fact of its cross-border nature, is not an issue which can be solved unilaterally; and as the realities of people on the move show today, migration solutions will not emerge from business as usual.
What will you remember about 2017? The growing crisis of displacement? The US pulling out of the Paris agreement and reinstating the global gag rule on family planning? Or that other countries reaffirmed their commitment to the Paris agreement, that Canada launched a feminist international assistance policy, that Saudi Arabia finally let women drive?
CGD experts have offered analysis and ideas all year, but now it's time to look forward.
What's going to happen in the world of development in 2018? Will we finally understand how to deal equitably with refugees and migrants? Or how technological progress can work for developing countries? Or what the impact of year two of the Trump Administration will be?
Today’s podcast, our final episode of 2017, raises these questions and many more as a multitude of CGD scholars share their insights and hopes for the year ahead. You can preview their responses in the video below.
Thanks for listening. Join us again next year for more episodes of the CGD Podcast.