Friday, March 08, 2013

Tension Between People And Place

Geography is destiny. That observation isn't cause for celebration. It's a problem to be solved. People migrate to geographies of better opportunity.

Demography is destiny. Overpopulation plagues India. Population decline spells doom for Portugal:

According to data from the Portuguese Institute of Employment and Professional Training, during the first nine months of last year 24,689 people cancelled their unemployment registration due to a decision to emigrate. This compares with 16,977 in the first nine months of 2011. In September alone, 2,766 people signed off for the same reason, a 49% increase on September of 2011. Yet between January and September Portugal’s EU harmonized unemployment rate rose from 14.7% to 16.3%, suggesting that without so many people packing their bags and leaving the figure would have been significantly higher, and offering some explanation as to why government officials don’t do more to try and stop the flow.

Nobel economist Paul Krugman recently suggested that among the ailments Japan was suffering from was a shortage of Japanese. Or put another way Japan’s slow growth is partly a by-product of the country's ageing and shrinking workforce. Looking at the country’s population dynamics Portugal certainly looks a likely candidate to catch this most modern of modern diseases. Not only does Portugal have the key ingredient behind the Japanese workforce shrinkage – long term ultra-low fertility – it has some added issues to boot. Japan may be immigration averse, but its inhabitants aren’t fleeing in droves.

Of course, a shortage is always relative to something. Many hold that the planet is overpopulated, and that energy constraints mean fewer people would be better. So shouldn’t we be celebrating all these children who aren’t getting born? Well, no, at least not if you want sustainable pension and health system, and that is what the developed world sovereign debt crisis is all about, how to meet implicit liabilities for an ever older population. One thing Portugal won’t have a shortage of is old people, since the over 65 age group is projected to grow and grow, even as the working population shrinks and shrinks. No wonder the young are leaving, even if the youth unemployment rate wasn’t 38.3%, just think of all the taxes and social security contributions the remaining young people are going to have to pay just to keep the welfare ship afloat. Patriotism at the end of the day has its limits.

In a nutshell, Portugal is dying thanks to demographic decline and outmigration. The real problem here is that geography, not demography, is destiny. Demographics measure population dynamics in a place, a territory. The issues change with the scale of analysis. Places develop, not people.

Portugal is dead. Long live the Portuguese. Staying, sticking it out, is the patriotic thing to do. Those who leave are ungrateful quitters, dine and dash nationalism. As a rule, we value place over people. This slant colors the work of social scientists. Policy is place-based, not people-based.

I'll plug the Clemens and Pritchett paper again. The concept of "income per natural":

While production has a place, people, not patches of earth, have well-being. The focus on income per resident has rested more on the spread and use of national accounts data and on statistical cost and convenience than on conceptual or welfare-theoretic foundations. But if income per resident is used as the measure of Salvadorans’ welfare it leads to untenable conclusions: if a Salvadoran moves from the countryside to San Salvador to get a factory job that raises her income 30%, this will be recorded as a welfare improvement for Salvadorans on average, but a 500% increase in income from a factory job in Texas does not (with, at best, only the portion remitted to residents counted).

Income per natural, not income per resident, can capture the economic development gains of the international migrant. An empty El Salvador is cause for celebration. Geography isn't destiny. People develop, not places.


Done By Forty said...

But the Salvadorian scoring a good job in Texas may or may not end up paying into that nation's coffers again. The boomerang probably takes a while to get back, in any case. Is it worthwhile for Salvador to track his income until he returns?

Jim Russell said...

The point of measuring income per natural is to track the economic development of people instead of the economic development of places. El Salvador may or may not benefit from migration. Regardless, lives are improving. Shouldn't that be the only goal of economic development efforts?

Done By Forty said...

I agree. But can you get organizations to think less in business terms (i.e. - what return can we expect on this investment) and more like a charity?

Can economic development be designed as if Mother Teresa were at the helm? :)

Jim Russell said...

There is a self-interest angle for places. Remittances and return migration are the obvious benefits. Less pronounced is how a migrant links two places. Talent trade can be mutually beneficial for both parties by increasing the flow of goods and services, even knowledge.