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A healthy US agricultural sector is critical to global food security. American farmers help keep food affordable around the world, but they also receive public assistance that too often comes at the expense of American taxpayers and consumers, as well as millions of poor farmers in developing countries. While the farm bill is not the primary vehicle for setting policy on biofuels or antibiotic use, Congress could use the legislation to advance smart policy changes that set the stage for broader reforms.
In a recent trip to the center of the world, I found myself confronting the big development questions in a low-income country with reasonably propitious circumstances. Papua New Guinea (PNG) is larger, richer, and growing faster than I had thought. It will go to the polls this very month to elect a new government. It is also facing all the dilemmas faced by most low-income countries since the 1950s—political fragmentation, resource curses, income inequality, and poor health. Have we learned anything to help it meet those challenges?
After seven decades of research and experience and effort, I’d say we have only partial answers to these questions because the decisive factor—public policy—is fundamentally indeterminate. The political choices being made in PNG bring this into relief. The current government’s policies can be characterized as blatantly disregarding norms of good governance or as pragmatic initiatives to construct a national and civil polity. Which of these characterizations is more accurate will only be revealed by the social and environmental consequences.
Papua New Guinea is at the center of the world
For starters, let me explain why Papua New Guinea (PNG) is the center of the world. One individual I met during my travels told me, “The world looks very different from here … You see a country in transition, strategically located as the bridge between Asia and the Pacific.” Then he convinced me with two maps on his wall much like the following.
Most of us are conditioned to think the world looks like this:
The re-centered map also shows that Papua New Guinea is firmly placed near Asia-Pacific trade routes, with valuable mineral and oil resources demanded by economic giants like China, Japan, Malaysia, the Philippines, and South Korea. PNG’s central location is partly driving a construction boom in Port Moresby as the country prepares to host the Asia-Pacific Economic Cooperation (APEC) meetings in 2018. In addition, PNG benefits from a long coastline (we know that being landlocked is a hindrance to development). It shares a land border with Indonesia, one of Asia’s largest economies and its 260 million people. It is also close to a place with higher wages (more on that below).
PNG is also an international leader on climate change
PNG has also played a central role in one of the world’s most challenging crises: climate change. In 2005, along with Costa Rica, the PNG government led a coalition of rainforest nations to develop a system, known as REDD+, that would compensate them for preserving their rainforests. These proposals eventually led to billion-dollar programs like the Amazon Fund. If global targets of slowing climate change by 2030 are going to be met, it will require sharp reductions in tropical deforestation because deforestation releases large greenhouse gas emissions; because destroying mature forests reduces carbon sequestration; and because policies for preserving tropical forests are among the most cost-effective ways to address global warming (see CGD’s Why Forests? Why Now?).
PNG is growing richer but facing a resource curse
Nevertheless, PNG is a struggling developing country with common problems of small size, concentrated exports, high income inequality, and political fragmentation. Its population is dispersed—85 percent of people live in rural areas. Domestic integration is difficult because of mountainous terrain and a combination of geology and climate that makes road maintenance costly. PNG’s per capita income barely budged from 1960 to 2000 (rising from $1,200 to about $1,900 in 2011 USD), but it experienced a resource boom and grew 60 percent to $3,000 in 2017. It is projected to reach $3,900 sometime in 2030.
PNG’s top exports come from mining (gold and copper) and agriculture (palm oil and coffee). A massive investment by ExxonMobil into extracting natural gas (LNG) contributed to the investment boom, but that project only started producing in 2014—just as global fuel prices began to decline. Economic growth is expected to resume at a modest pace on the base of extracting natural resources and agriculture, however, few expect the economic benefits from these sectors to be widely shared. Some argue that PNG will face a “natural resource curse,” including evidence that resource exports are driving up exchange rates and reducing the profitability of local industry. Others have documented the way promises of jobs and income for local communities can devolve into militarization and exacerbate inter-ethnic conflict. Current policies are keeping the currency overvalued and dependence on imported consumer goods may be one of the motivations that the country (elites?) won’t let the foreign exchange rate adjust more rapidly.
Papua New Guinea has unexploited potential due to the wage cliff
One response to the resource curse would be to diversify exports, but the greatest potential probably lies in reaping the benefits of labor mobility. PNG is on one side of an economic cliff relative to Australia. The Torres Strait islands that are part of Australia lie only 4 km from PNG. I was told you can travel between PNG and Australia’s mainland “in a tinny in half a day.” While that proximity has implications for controlling illicit trade and the spread of infectious disease, it also presents an incredible opportunity for raising incomes in both countries by encouraging properly regulated temporary migration. Average wages in PNG are on the order of $580 USD per month (including the formal sector), while Australian wages are closer to $5,600 per month—a place premium of 10 to 1. No anti-poverty program exists to help Papuans raise their income on the scale that would be possible by an appropriate labor mobility agreement, temporary work program, or skills partnership.
Health challenges, old and new
While PNG is more “central” than you might think, it is still a lower-middle income country with poor health conditions. Life expectancy is only about 60 years on average. Health has improved over the last two decades, but the pace has been too slow for PNG to meet any of the Millennium Development Goals. Infant mortality and maternal mortality remain high at about 47 per 1,000 live births and 215 per 100,000 births, respectively. Measles, diarrhea, and respiratory illnesses are among the top 10 risks for premature death, but increasingly Papuans are dying early from non-communicable diseases (NCDs – see figure below).
The reasons for this slow pace of improvement are multifaceted and complex, but public health policy hasn’t been particularly helpful. Several Papuans told me they remembered community workers who maintained demographic and health records and conducted outreach visits when they were young, but reported that these functions are rarely performed today. A few years ago, a study described 2002 to 2012 as a “lost decade” because, by many measures, the provision of primary health care stagnated or declined during that period. That study documented declines in drug availability, consultations and availability of doctors at front-line facilities, and attributed these changes to poor management and less public funding reaching facilities.
PNG’s future depends on political action
Indeed, public financial management and the politics that drive it are the factors that will make or break PNG’s future. PNG has been independent for only 40 years and has undertaken two major waves of decentralization as part of the process of building a national political order and a viable governing coalition. In his effort to push resources and benefits to local communities, Prime Minister O’Neill created a District Services Improvement Program (DSIP) which gives each parliamentarian the equivalent of US$3 million each year to spend in their district without restrictions. While its critics call the money “slush funds” and deride it as institutionalizing corruption, O’Neill and its defenders argue it is more effective than national policies and strategies for reaching the local level. Spending these funds seems to be hindered by the same difficulties in financial and human resource management that have characterized national and provincial service systems and political favoritism. Ironically, the devolution of spending could also serve to strengthen central authority by investing more power in national parliamentarians.
The sophistication of a political system that mediates among more than 800 languages and cultures cannot be underestimated, yet it still seems to be focusing on short-term tactical gains at the expense of long-term goals. PNG is certainly not unique in this regard. It’s a trait shared by most countries. Nevertheless, PNG is facing a significant transition in the next decade as foreign investment and increased international engagement bring resource benefits along with resource curses.
As I look at what we’ve learned in the field of development, I wonder, what advice we can offer the next government? The benefits of prudent fiscal and monetary policies, rule of law, tough negotiations for revenues from extractive industries, labor mobility agreements, and promoting intensification of agriculture rather than destroying forests sound good, but all rely on constructing a political coalition aimed to serve collective national prosperity and not necessarily particular interests. The benefits that come from investments in education, health, and infrastructure are similarly widespread without necessarily helping incumbents win re-election. Creating and implementing an effective national bureaucracy to serve the people is a daunting challenge. This country deserves the best that the international system can offer from researchers, policy practitioners, and funders to help meet these challenges and get the most out of its opportunities. The “how” embedded in politics is the one thing countries like PNG need to figure out for themselves. The rest of the world cannot answer that conundrum but we should help with the rest.
Thanks to Emily Foecke for her inputs to this blog post, Sarah Allen for her help in putting it together, and to the Australian and PNG officials and individuals who took the time to speak with me during my trip.
Updated 6/22/2017: Estimates of Australian and PNG wages have been corrected. The original post included incorrect estimates of wages and mistakenly reported a place premium of 38 to 1.
This annual report marks two milestones in 2016: CGD’s 15th anniversary and, at the end of the year, its first leadership transition, with founding president Nancy Birdsall being succeeded by Masood Ahmed. In this first era, the Center has established itself as an influential voice in international development policy, with a unique model of nonpartisan policy innovation.
A rise in protectionism and increased external uncertainty may compound already existing domestic weaknesses. Latin America cannot run the risk of being unprepared for the significant potential direct and indirect effects of such a menace to its exports, capital inflows and growth.
In 2015, there were 77,470,857 visits to the United States from other countries. These visitors brought tremendous benefit: not only did they each spend an average of $4,400 on US goods and services during their stay, but also they helped US firms engage with foreign markets, raise the quality of students here, and help with the diffusion of knowledge. We should want more of these tourists and businesspeople, and the above suggests a real cost to inaccurate visa screening mechanisms—of which blanket bans are a prime example.
Many of the common source countries for visitors to the US are covered by a visa waiver program which means most citizens wishing to temporarily visit for work or vacation don’t have to apply for a visa before traveling. But for the rest, entering the US requires applying for a visa at a US consulate and attending an interview before they set foot on a plane. In 2016, over 8.5 million people from 196 countries applied for a tourist or business (B class) visa to visit the United States. Unfortunately, many potential visitors that needed a B-visa before their journey were out of luck: one in five of their applications was rejected. In some countries, the figure was far higher: if you are Ghanaian, for instance, there’s a 63 percent chance your application will be denied.
Why are they rejected?
The official guidance offers insight:
An application may be denied because the consular officer does not have all of the information required to determine if the applicant is eligible to receive a visa, because the applicant does not qualify for the visa category for which he or she applied, or because the information reviewed indicates the applicant falls within the scope of one of the inadmissibility or ineligibility grounds of the law. An applicant’s current and/or past actions, such as drug or criminal activities, as examples, may make the applicant ineligible for a visa.
And, in particular, under INA Section 214(b), you will be denied a visa if you “did not overcome the presumption of immigrant intent, required by law, by sufficiently demonstrating that you have strong ties to your home country that will compel you to leave the United States at the end of your temporary stay.” In other words, the US assumes you will use your temporary visa as a way to migrate permanently unless you prove otherwise.
Deterrent effect plus refusal risk equals…
The complex process and the risk of rejection will deter potential visitors from applying in the first place: in many countries, a $160 application fee (plus the hassle of the application and interview) enters you into a process where you’ve got less than a 50:50 chance of getting a visa. And then the rejection rate will further lower the number of applicants who actually get visas to travel. This double effect greatly reduces the number of visitors to the US.
The relationship between the visa refusal rate and the number of visas granted is large, significant, and negative. Simple OLS regressions suggest that, controlling for GDP, population, and country fixed effects, a 10 percentage point increase in the refusal rate is associated with a 10 percent decrease in the total number of visas granted.
The exact magnitude of the total deterrent effect of visa requirement plus refusal risk is uncertain—international estimates for the deterrent effect of visas range from a 20 percent decline in visitors in recent panel analysis to 70 percent in earlier cross-sectional literature, while an analysis of the visa waiver program suggests travelers from countries participating in the program were 7 to 9 percent more likely to visit the United States than travelers from countries not in the program. But let’s say the total burden of a visa requirement and refusal risk reduced the number of applicants from B-visa countries by 30 percent. Moving to a visa waiver program for all of those countries would increase the number of visitors to the US from those countries from 8.5 million to over 11 million, bringing in an estimated $14 billion dollars—equal to the entire state budget of North Dakota and larger than the budget of 16 other states.
Doubtless many of the visa rejections are valid—reflecting overstay or other risks—but this considerable economic hit does suggest there could be significant advantages to improving screening accuracy so that it produces as few false positives as possible. If we reject someone, we better be sure we have a good reason. And—from an economic perspective—it suggests blanket bans such as the ones re-proposed in Monday’s Trump Administration Executive Order are a big step in the wrong direction.
Data on refusal and approval rates used in this analysis are public records from the US State Department. For replication ease, the data and Stata code to produce the graphs and regressions can be found here. The shapefiles to create the map were downloaded from GADM.
In a recent interview with the Financial Times, Peter Navarro, the director of the White House National Trade Council, suggested “it does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components.” Instead, he argued, "we need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.” This policy proposal joins the administration’s executive orders to reduce migration as twin planks of an effort to create good jobs for Americans.
Sadly, the combined impact would have the opposite effect—as well as having grim consequences for the developing world. Americans have three choices regarding the low-paying, often hazardous jobs most don’t want: keep foreign labor here, continue to import the needed products, or use robots. To pretend otherwise is doing everyone a disservice.
Want to make products at home? It will cost you, America
To begin with supply chains, it is true that they increasingly cross borders—as much as 60 percent of US imports in some industries are components and inputs. But still, considerable barriers to trade are the reason to believe that trying to produce the same goods at home would create only a few, low paying jobs at a cost to the American consumer. James Anderson and Eric van Wincoop estimate that transport and border related trade barriers including translation expenses and currency exchange add 21 percent and 55 percent respectively to the cost of goods. (Policy barriers like tariffs account for only 8 out of the 55 percent.) Producers of goods outside the United States involved in supply chains to America have to be able to suck up the combined 86 percent markup in order to make their exports compete with producers in the US.
Foreign firms’ ability to profit even after this border markup tells us something about the kind of jobs often associated with component production and so the kind of component manufacturing jobs we’d hope to ‘bring back’ if we kept supply chains at home. Many supplier firms remain competitive in large part because they don’t pay workers nearly as much as they are paid in the US. In 2009, Indian manufacturing workers averaged $1.20 an hour in compensation—a little more than one thirtieth US manufacturing pay that year. In Taiwan, manufacturing workers were earning a little less than a quarter of the US level. In China, they were earning about five percent the amount of their US counterparts—and less than one quarter the US minimum wage. American workers wouldn’t want (and legally couldn’t be offered) jobs that pay so little.
If America was to start trying to make rather than import the components currently being made abroad using the same technologies and workers paid American wages, those components would cost far more. That would drive up the cost of the finished product. And that would be bad for the US company making the product: they’d face tougher competition from finished imports from other places and lose any hope they had of exporting products themselves. Over 27 percent of basic metals and fabricated metal products imported to the US is re-exported in US exports, for example. Raise the cost of those intermediate products by trying to produce them at home using native labor, and you reduce America’s exports.
Keeping up with the technology
If more pay with the same technology doesn’t work as an option, there is another way to bring component manufacturing to a place with native wages 20 times as high as China today: use a different technology. And there is already a strong trend towards automation of jobs in industry. All the evidence suggests that Chinese competition was one factor speeding the decline of US manufacturing over the past 15 years, for example, but all the evidence also suggests that increased manufacturing productivity—new technologies—played a considerably bigger role. This is a global phenomenon: despite the low wages, manufacturing jobs are disappearing everywhere, losing out to machines. Manufacturing employment peaked in Brazil in the 1980s and China in the mid-1990s. Trying to increase intermediate product manufacturing in the US with native workers would only speed the trend. The jobs localized supply chains did create in the US would overwhelmingly go to robots, not people.
Foreign workers: taking jobs that Americans won’t
Our colleague Michael Clemens has looked at agriculture and found that, in that sector, trying to replace foreign labor with American labor doesn’t work even if the jobs are already in the US. One case is the seasonal farm worker program in North Carolina. In 2012, 7,000 foreign farm workers in the State labored in positions American workers wouldn’t take. Despite first preference rights to the positions, high local unemployment, competitive wages, and a lot of advertising, only seven Americans finished out the season working on these farm jobs. If it hadn’t been for the migrants, the work simply wouldn’t have gotten done. A second case Michael studies is the Bracero guest worker program, which ran from 1942 to 1964, bringing in millions of Mexican workers to work on American farms. When the program ended, there was no evidence of a jump in wages or employment for US farmworkers. Instead, Michael found evidence that the end of the Bracero program increased farm automation—once again, robots took the jobs that Americans wouldn’t take.
To be sure, China, Mexico, and elsewhere have gained considerably from the movement of goods and people to the US. For all jobs paying a tenth or a twentieth of the average US manufacturing wage aren’t attractive to Americans, for people in a country like China that saw 41 percent of its population living on less than $1.90 a day as recently as 1999, they were a godsend. Again, and despite low wages by US standards, low-skilled migrant workers earn multiples of what they would at home and send billions in remittances back to families desperately poor by any US standard. It would be a considerable setback to global development progress if the US tried to reduce the movement of goods and people from Asia, Africa, and Latin America.
Loss of global engagement is a loss for the US
But it would also be a setback to the United States. Because both supply chains and migration allow for more efficient production and increased competitiveness, there is no simple trade-off between jobs at home and jobs abroad. On average, a US firm that adds 10 percent more jobs to their foreign affiliates adds four percent more jobs at home. The same applies to migrant labor doing jobs here that Americans won’t do: in 2012, the 7,000 foreign farm workers in North Carolina contributed more than $248 million to the state’s economy, creating over 1,400 jobs for Americans.
There is a significant challenge to improve quality job prospects in this country. Americans want stable employment that pays considerably more than $7.50 an hour, and they should have it. Greater global engagement could and should help create the resources for the education and training, the tax credits, and the strengthened provision of services from child care through infrastructure that will generate more of those jobs. But cutting off from global engagement will simply leave everyone worse off. You simply can’t fashion good jobs for American natives out of good jobs for people from the developing world, because what counts as a good job is so radically different between the two groups.
The Trump administration has imposed a number of entry restrictions through executive order, justifying them on national security grounds. Their national security impact is hotly debated and the orders also raise considerable moral issues. But one additional set of concerns regards the economic costs of tightening visa restrictions, which can be considerable even when looking solely at temporary visitors. While the current bans would likely have a limited economic impact on the US through reduced tourist and business travel, the extension of restrictions could carry increasingly heavy economic costs.
The current executive orders call for barring Syrian refugees indefinitely and restricting overall refugee flows to 50,000—a move discussed by Cindy Huang and Hannah Postel in a recent blog post. The order also temporarily suspended all entry from seven predominantly Muslim countries. The refugee and entry bans are undergoing review by the courts and are currently blocked. For the future, the administration is mulling broader visa requirements making it harder for a wider range of people to enter the United States including a “uniform screening standard and procedure” for everyone coming to the country.
The impact of visa requirements on travel and the economy
Tighter restrictions on permanent residence halt a positive force for economic growth and native-born wages in the US. But even bans or other limits on tourist and business visas carry a heavy cost, because many people are deterred from travelling to a country by the hassle and expense of obtaining a visa, while others can’t travel because their visa applications are rejected (already 20 percent of applicants in the case of Mexico, 54 percent in the case of Senegal, for example).
Robert Lawson of Southern Methodist University and Saurav Roychoudhury of Capital University suggest that demanding a visa in advance from citizens of a country is associated with a 70 percent lower level of tourist entries than from a similar country where there is no requirement to get a visa. Simone Bertoli and Jesús Fernández-Huertas Moraga argue the introduction of a visa requirement reduces total direct bilateral flows between 40 and 47 percent, while increasing the flows toward other destinations between 3 and 17 percent—implying that tougher visa restrictions would reduce American tourism receipts to the benefit of other countries. It wouldn’t be a surprise if making the visa process tougher increased its deterrent effect—and the evidence on introducing the in-person interview requirement for US visa applicants suggests exactly that, according to Department of Homeland Security research.
Lower flows of people have knock-on effects: Natalia Kapelko and Natalya Volchkova of the Center for Economic and Financial Research document that not only do the value of exports fall with visa restrictions, so too does the probability of US firms entering visa restricted foreign markets. Other evidence suggests that when you make it harder for people to move to your country, not only do tourism and exports fall, but the diffusion of knowledge slows and the quality of international students drops.
The costs and benefits of tighter travel restrictions
The immediate economic cost from temporarily barring visitors (as opposed to green card holders) from the seven countries on the Executive Order is relatively low since they are not major sources of tourism or trade. In 2016, combined US exports to the countries were just $1.6 billion—out of total US exports of $ 6.4 trillion. Only about 84,000 people from those countries visited the US in 2015 on visas. On average, overseas travelers to the US spend about $4,400 on American goods and services with each trip. That suggests a direct economic cost of $370 million per year were the ban to continue.
Nevertheless, even these numbers suggest that rescinding the ban, or at least targeting more precisely to exempt lower-threat entries—including 80-year-old grandmas, five-year-old children, and people who worked with coalition forces during the Iraq war—would have benefits. As to any potential benefits in terms of reduced security risks, it is worth noting no national from any of the seven banned countries has killed an American on US soil in terrorist attacks at any time between 1975 and 2015.
The costs of a tougher visa policy would increase were the bans made permanent or extended to more countries. Robert Khan, Ted Alden, and Hedi Crebo-Rediker of the Council on Foreign Relations suggest the direct and indirect costs of a full travel ban covering every Muslim-majority country could range from $31 billion to $66 billion, with an associated US job loss of 50,600 to 132,000.
And tighten visa restrictions to all countries, then a considerable part of the $221 billion in US tourism receipts each year could be at risk—alongside global trade, and financial and technological cooperation. Again, there may be security benefits to tougher visa requirements and restrictions. But it is worth noting the chance of being murdered by a tourist on the most common visa (the B visa), is 1 in 3.9 million per year. The chance of being murdered by someone already here is about 152 times higher.
Regardless of their scope and scale, the strongest arguments against greater restrictions on entry into the United States may remain those around national security, morality, and human decency. But if the restrictions are expanded, they will have an ever-greater economic impact as well. Those who want to visit will lose out from a dream holiday, a better education, or a chance to start a trading relationship. But so will the Americans who work in hotels and resorts, schools and universities, factories and farms who would have profited from that visit. For a set of policies where any benefits appear small and uncertain, these costs alone might justify a reassessment.
We’ve spent the past year focusing on beyond aid approaches to promoting gender equality worldwide, through discussions on how to improve outcomes for women and girls in areas ranging from migration to UN peacekeeping forces. Next we’re looking at how trade agreements can help to ensure they benefit women and men equally, whether they participate in the economy as wage workers, farmers, or entrepreneurs. That might take both carrots and sticks—because, at the moment, women are all too likely to lose out.
On the supply side, the direct beneficiaries of trade skew male: women running their own businesses are disproportionately located in the informal sector and in smaller firms, and few such firms participate in trade. And women employed as wage workers are also less likely to be employed within companies that export: in almost half of exporting companies across 20 developing countries, women made up just 20 percent of those employed.
The issues underlying that disparity go far beyond trade policy—but trade policy can still help address them. Our colleague Kim Elliott recently pointed to the fact that the Global South is leading the way by integrating considerations of gender into trade agreements. The trade agreement between Chile and Uruguay, for example, recognizes gender as a factor impacting workers’ ability to benefit (or not) from trade channels and articulates a commitment to address barriers to women in the workforce. But even these agreements are not backed up by legal requirements or enforcement mechanisms. (One potential exception comes from the East African Community partner states, which have taken a first step towards legally mandating the incorporation of gender considerations into trade policy through a bill introduced earlier this month.)
US trade agreements have included non-discrimination in employment and remuneration clauses since 2007, which places them ahead of recent EU agreements. But there is more to be done on both sides of the Atlantic. It is time to transition from aspirational language to solid commitments and enforcement.
We propose three ideas in our new policy note:
1. Use pre-ratification conditions to incentivize the reform of gender-discriminatory laws
In order for trade to benefit men and women equally, discrimination against women seeking to enter and participate in the workforce must be addressed. One place to start is with legal discrimination: 79 countries legally prevent women from holding certain jobs on the grounds of their sex alone.
Prior to ratifying agreements, trade partners could stipulate the need for partner states to repeal discriminatory laws preventing women from equally benefiting from trade. Similar (non-gender) conditions have been imposed in the past: countries including Morocco, Oman, Chile and Guatemala were required to reform their labor laws before signing trade agreements with the United States.
2. Consider imposing sanctions on sectors that continue to discriminate
If discriminatory laws are not repealed, then countries might refuse to import goods coming from sectors that continue to bar women’s participation. These sanctions would need to be compliant with existing trade treaties.
3. Empower local “watch dogs” to monitor compliance and promote accountability.
The legislation accompanying trade agreements should include funding for local human rights and women’s rights groups, as well as labor unions, capable of keeping a pulse on public and private sector compliance with trade agreements’ terms regarding non-discrimination and holding non-compliers to account.
The intersection of gender and trade is one that under-researched, as trade traditionally has been thought of as “gender neutral.” But women face particular constraints as owners and workers due to their gender. Those negotiating trade agreements need to consider and combat gender disparities in order to ensure that women aren’t losing out on the benefits of trade.