Affordable Housing Institute : US

Even as an enormous underground river of people flows south to north across the American continent — the vast human tide of illegal immigration from Mexico —

 

Flowing north across the Rio Grande

 

it is counterbalanced almost perfectly by another vast underground river flowing north to south: a flow of capital, in remittances from workers back to their families at home.

 

Out of sight, the money flows back south

 

The south-to-north river is being fiercely debated, with Congressional proposals to block or channel the human river north, and local communities like Farmers Branch, Texas are seeking to stem the vast underground tide by hitting the ocean with a baseball bat, enacting an ordinance to prohibit landlords from renting to those who cannot prove they are legal residents. 

 

One view of illegal immigration

 

Another view

 

Even as this debate is playing out, the other river is being actively primed by both US and Mexican capital markets, as highlighted in this Economist article:

 

ACROSS the Mexican countryside, villages are denuded of their working men but kept alive by their labour.  

 

Increasingly we see communities of separated families, where geographical bachelors have migrated to the cities and the jobs, and their spouses, parents, and children stay behind.  With capital mobile, labor too can be mobile, because it can send its capital home:

 

The northward exodus to America numbers about 500,000 people a year.

 

Every two years, another million in America’s fields

 

The money sent in the other direction in the form of remittances amounted to about $23 billion in 2006, according to the Bank of Mexico, the country’s central bank, up almost sevenfold in a dozen years.

 

The rise in remittances is a huge enabler of illegal immigration: as it becomes easier to export the extract of working up north, the desirability increases to move north, by any means necessary.  And the capital markets, in their quest for market share, are dramatically increasing capital-transfer efficiency:

 

As that number has grown, so others have fallen: the fee for remitting money has dropped from an average of 9.2% in 1999 to 3% in January 2007, according to Bancomer, a Mexican bank.

 

When you reduce resistance in the circuitry, amperage flow increases.

 

Wow, feel those capital flows!

 

Transmitting money has become cheaper partly because the cheques have become bigger, from $290 on average eight years ago to $350 now. More importantly, over 90% of remittances are now sent by electronic wire-transfer, according to the Bank of Mexico, compared with only half in 1995.

 

That Mexico’s economy is tied to the US’s is unquestionable, as shown by this Dallas Federal Reserve study:

 

In 2003, Mexico received nearly $13.3 billion in workers’ remittances, an amount equivalent to about 140% of foreign direct investment and 71% of oil exports.   Continued growth in remittances is expected in 2004.  The latest data, through March 2004, show remittances almost 22% higher than the same period a year ago.

 

As the Dallas Fed’s charts show, Mexico has the world’s highest remittance-receiving volume:

 

Mexico’s 2002 remittances were about 15% of all remittances received by developing countries. They exceeded those received by Africa ($7.8 billion), Europe ($5.8 billion) and the Middle East ($6.1 billion). As recently as 2000, India was the top receiver with $8.3 billion, followed by Mexico with $6.5 billion.

 

 

And the US has the largest remittance-paying volume:

 

On the flip side, the United States is the leading source for workers’ remittances. In 2002, the United States alone provided almost $23 billion in remittances, followed by Saudi Arabia with nearly $16 billion (Chart 2). The top 10 countries accounted for 85% of 2002 remittances.

 

 

Those figures are three years old.  Since then, as the Economist noted, remittances have increased a further 70%.

 

As a result of their vigorous growth, workers’ remittances now occupy third place as a foreign exchange generator for Mexico.  Maquiladoras continue to be the top foreign exchange generator, at $18.4 billion in 2003, followed by oil at $15 billion.

 

Thus, of Mexico’s top three sources of foreign exchange, two tie directly to cost advantages Mexico has versus the US economy: maquiladoras and remittances.  That’s an enormous amount of economic pressure, a tide that will not be stopped by half-hearted interdiction — the more so because of the capital markets’ tireless drive for even greater efficiency:

 

However in rural communities in Mexico, where every peso counts, even 3% is a big bite out of a remittance cheque. That is why the Bank of Mexico and America’s Federal Reserve are running a programme, called Directo a Mexico, to cut the cost further.

 

Back in the Cold War heights, when we were grappling against the Soviets, a great deal of Herman Kahn and other think-tank leadership went into the complexities of long-term strategic warfare. 

 

In the long run, even a full stomach is an economic weapon

 

The more Kahn and similar theorists thought about decade-long geopolitical conflict, the more everything became a strategic weapon, because everything tied into the nation’s capacity to sustain effort.  In the same way, the longer you study the immigration question, the more you realize that everything to do with the US economy touches upon it one way or another — including capital … and housing.

 

Do the migrants themselves have accounts to send money from? As many as 70% do, according to a recent report by the Bank of Mexico. This is largely because hundreds of American banks, eager for deposits, will gladly open accounts for people carrying only a Mexican consular identity card, rather than official United States government identification. This allows people to formalise their finances without formalising their immigration status.

 

As I’ve written elsewhere, it’s absolutely critical to formalize financial status; otherwise those who are excluded from capital are condemned to poverty.  Yet this formalization — which helps workers (legal or illegal) here in America, and their families back home — also enhances the attractiveness of making it over the border, to the land of employment.

 

Bansefi has seen rapid growth, with 3.4m accounts now open, compared with 850,000 in 2001. If banking continues to spread on both sides of the border, Mexico’s villages should continue to benefit from the fruit of their emigrants’ hard work, without it being squeezed along the way.

 

Capital, my favorite businessman Auric Goldfinger explained to James Bond, is a catalyst:

 

“My treasure of gold is like a compost heap.  I move it here and there over the face of the earth and, wherever I choose to spread it, that corner blossoms and blooms.  I reap the harvest and move on.”

Goldfinger, page 135

 

“That’s the second lesson: when the odds aren’t right, make them right.”

 

Where does the capital from Mexicans’ labor go?  Back into Mexico’s development:

 

The World Bank reports that remittance flows are developing countries’ second largest source of external funding, after foreign direct investment.

 

This is really important.  We make much of wealthy-nation governments’ foreign aid efforts, and yet right behind them is the grass-roots foreign-aid source: millions of expatriate workers sending their money home to their families.

 

Further, remittances are more stable than private capital flows, which often move with business cycles, raising incomes during booms and depressing them during downturns.

 

Any economic-development strategy for Mexico, therefore, must look not just at the discrete and visible flows of foreign aid and foreign direct investment, but also at remittances, which have arisen spontaneously through two market forces: capital and labor/ earnings.  Trade trumps edicts.

 

1931: Mexicans being deported

 

In Mexico, economic impact studies have focused on the southern states, such as Michoacán, Guerrero and Oaxaca, where it is believed that remittances mostly or sometimes completely cover general consumption and/or housing. One estimate indicates that 80% of the money received goes for food, clothing, health care, transportation, education and housing expenses.[4]

Because remittances are higher in Mexico than in other developing countries, they also may play a key role in the development of productive economic activity.

 

Thus Mexican labor here in America does not merely support families in dependency; rather, it is transforming the Mexican economy in some very impoverished southern Mexican states.

 

One study concludes that remittances in Mexico are responsible for about 27% of the capital invested in microenterprises throughout urban Mexico.

 

In America, home ownership is a driver of new business formation because people readily tap home equity to start new businesses.  The same thing happens in Mexico, with the remittances flow.

 

The estimate goes as high as 40% in states that have typically high migration rates to the United States, such as Zacatecas, Michoacán and Guanajuato.

 

Numbers 9, 15, and 19 on your map — central Mexico

 

Even if US politicians has been slow to recognize the value of the remittance flow, the Mexican government has been quick to support it:

 

Two government-sponsored programs channel remittance flows into infrastructure development and business start-ups in Mexico. In the Dos por Uno (Two for One) program, established in 1993 by the state government of Zacatecas, the federal and state governments each match one dollar for each dollar immigrants contribute for infrastructure development projects such as paving roads.

 

Saving precedes borrowing, for governments and municipalities as for people.

 

In 1999, this program evolved to Tres por Uno (Three for One) when the local government began to participate. Through 2002, about $40 million had been invested in 788 projects in several Zacatecas municipalities.  Dos por Uno programs have spread to other Mexican states such as Guerrero, Jalisco, Guanajuato, San Luis Potosí and Michoacán.

 

The housing component in all this is evident.  Mexicans living and working illegally in America are interested in minimizing their housing consumption up here so they can maximize their remittances back home to Mexico.  Living as geographical bachelors, and coupled with their clandestine status, they are likely to live in overcrowded conditions, the slums inside.  In fact, because slums are a wealth-extraction machine, it is economically rational for them to arise in American neighborhoods dominated by illegal immigrants who regard their time here as transitory, simply so they can build up equity and invest it farther south:

 

Another government-sponsored program to channel remittances into business start-ups is Invierte en Mexico (Invest in Mexico), launched by Nacional Financiera SNC, Mexico’s largest development bank, in conjunction with the Inter-American Development Bank and organized groups of Mexican immigrants in the United States.  Invierte en Mexico offers Mexican immigrants the opportunity to invest in their communities to generate employment and foster economic activity through starting businesses such as drugstores, supermarkets, gas stations and restaurants. The program provides business advice and support in developing business plans at no charge to immigrants. The program budget is about $2.2 million and is available only in Hidalgo, Zacatecas and Jalisco.

 

As I wrote recently in when a town dies,

 

Throughout history, cities have been where wealth was created, ideas were born, businesses blossomed, and revolutions started.  Cities exist for their connections of people to people, and as we have seen in posts on local real estate taxes, they too are economic organisms, whose ability to provide services and amenities to their inhabitants depends in large part on the city’s economy.  A city and its residents are symbiotes, each contributing to the other’s health. 

 

Here in America — and as remittances demonstrate, also in Mexico — labor mobility is a huge economic strength.  Markets and people move much faster than government, and their movements shape and grow cities and spontaneous communities.  The north of England is still suffering economically because people cling like lichen to their native soil, yet in the Americas people readily accept a thousand-mile separation.  

 

Running for the future

 

It’s why our economy grows, and our population grows, even as much of Europe economically stagnates.

 

America is the land of opportunity.  That’s why it attracts people: far from being ‘those’ people, they are ambitious.  For many, especially those sending home remittances, that’s why they stay, and why they accept substandard housing conditions: for the economic opportunity.

 

Wanting in

 

As the United States thinks about immigration, legal or illegal, and how to rationalize what everyone agrees is a currently untenable situation, keep your eyes fixed on jobs, housing, and infrastructure development.  The more we make Mexico rich, the more we strengthen Mexican communities and housing alternatives, the less the pressure to have illegal immigration.

 

As long as there is money to be made, they will keep coming

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