Central America
Whose Money Is It Anyway?
Remittances play a key role in this thin strip of the globalized world known as Central America. The US$12 billion flowing in each year have attracted capitalÂ’s voracity. The remittances are expanding markets and skyrocketing consumption. TheyÂ’re triggering a rapid urbanization with no corresponding productive support and massively reclassifying the poor from non-citizens to clients and consumers. Telephone companies, airlines, urban developers and money transfer companies are all lapping it up. But how long will this banquet last?
José Luis Rocha
Remittances don’t come vacuum packed and can’t be isolated in a test tube. They are conditioned by a socio-political environment and come with a cultural remittance attached—like a remora. They’re tugged at by consumption patterns introduced through publicity tactics that massage fine psychological threads.
Pieces of economic imperialism“The cosmetic manufacturers aren’t selling lanolin,” said the head of a publicity agency to US sociologist Vance Packard fifty years ago, “they’re selling hope. We no longer buy oranges, we buy vitality.” Remittances don’t escape the influences of publicity that turned the miniscule Apple into one of IBM’s major competitors and Marlboro from an unsuccessful cigarette into a symbol of masculinity. Objects indicate status, compensate for frustrations and satisfy very diverse needs. This is particularly true in these times of new information technologies, video cameras, iPods, cell phones… Through the long labyrinths of consumption, remittances—just like any other form of income—are conditioned by the strategies of great transnationals and local capital, and by the supply gaps in state services. All the glorious projects seeking to bunk a ride with the remittances must bear in mind their political, cultural and economic mortgage.
This point of view is not so obvious. Remittances are immersed in what David Harvey calls “economic imperialism,” differentiable from but in a dialectic relationship with political imperialism. While political imperialism has a territorial base and acts through state apparatuses and political groups, the dynamic of economic imperialism is more diffuse and more embracing. Economic power flows and crosses a continuous space to propel itself towards—and beyond—territorial entities through the daily practices of production, commerce, capital flows, monetary transfers, labor migration, technological transfers, monetary speculation, information flows and cultural impulses. This dynamic isn’t always explicitly linkable to specific policies. Its molecular form is made up of many forces that sometimes clash and sometimes reinforce certain added tendencies. One tendency stands out above all others: exploitation of the asymmetries manifested in the spatial exchange relations.
This is a constant of capitalism. To get beyond remittances as an epiphenomenon, they have to be seen in this context and we need to ask what role they play in the scheme of unequal exchange, which in turn involves asking about this particular point in capitalismÂ’s development. Conceiving the study of remittances this way will help us discover whatÂ’s happening beyond the subjectsÂ’ intention-ality. It attempts a long-term and broad-scoped view. One thought-provoking instrument for achieving such a view is whatÂ’s known as KondratieffÂ’s long cycles.
From prosperity to depression:
CapitalismÂ’s recurring highs and lowsSeeking to develop a dynamic economic theory that could overcome the inadequacy of those based mainly on a static vision, Nikolai Dimitrievich Kondratieff set about in 1920 to discover the tendencies, variations and interrelationship of economic elements over time. It was clear to all scholars that economic phenomena appeared in a perpetual state of flux. Some even admitted that they were cyclical, subject to perceptible repetitions or reversions in prices, interest rates, the percentage of unemployed, salaries, foreign trade, etc. But they only admitted the existence of medium-sized cycles that were seven to eleven years long and lesser cycles of three to four years. Kondratieff discovered larger cycles of forty to sixty years. He found that velocity, not trends, was the key piece in tracking the path of the long cycles.
Kondratieff postulated that cycles are inherent to the essence of the capitalist economy and present two counterpoised phases: years of prosperity predominate during a growth period and years of depression during a stagnant one. The most disastrous and extensive wars and revolutions usually come during growth periods, which are periods of great tension among the economic forces. During the stagnant phase, on the other hand, there are numerous discoveries and inventions in production and communication techniques, but they end up being applied on a large scale only at the beginning of the following growth phase. If the seventies and eighties were a phase of stagnation, then KondratieffÂ’s theory coincides with the optimistic forecasts of anthropologists Arjun Appadurai and Keith Hart, as well as Internet expert Nicholas Negroponte, who state that weÂ’ve only had meager returns from the development of information technology so far and that changes waiting just around the corner will skyrocket productivity and reconfigure societies and cultures.
Analyzing statistics for the United States, France and England, Kondratieff found a first 60-year wave (1789-1849), with a growth phase and stagnation phase whose turning point was 1814. He discovered a second 47-year wave (1849-1896), which peaked in 1873. The first phase of the third cycle ran from 1896 to 1914-20, when he concluded his study. Subsequent studies agree that 1945 marked the close of that cycle and the start of a new growth phase, which in turn began to stagnate in 1970-73.
Kondratieff was extremely cautious about his theory and didnÂ’t postulate any interpretations about its causalities. Nor was he given much time to do so. He launched his conclusions in the Anglo-Saxon world in 1925 and 1935, with an eight-year stint in Siberia in between despite his outstanding contribution to the first Five-Year Plan of 1920 and his considerable influence on the New Economic Policy. In 1938 he was gunned down by StalinÂ’s henchmen.
Some other forecasts are now being fulfilledLiberal economist Joseph Schumpeter and Marxist economist Ernest Mandel developed their theories on cycles from very different perspectives. They agreed that no bi-polar syndrome was involved in the economy and the strategies of capitalists, but rather that the cycles are generated by the dynamic of capitalism. Mandel believed that capitalismÂ’s self-destructive tendency was unavoidable, but that its upward turns were artificially produced by exogenous counter-cyclical factors.
US sociologist Immanuel Wallerstein, meanwhile, made quite daring interpretations in the framework of his world system theory. The processes he identified as typical of a declining phase are those that preceded the phase we’re currently in: a declining growth of production, an increased unemployment rate of active wage earners, the relative displacement of the points of benefit from productive activity to profits derived from financial manipulations, an increase in state indebtedness, the relocation of the “old” industries to zones with lower salaries, an increase in military spending—with the justification that it’s not really of a military nature, but rather to create a counter-cyclical demand—a fall in real salaries in the formal economy, expansion of the informal economy and the growing “illegalization” of inter-zone migration.
Mandel forecasted that capitalism would have a hard time surviving the last depressive cycle. He was dubious that a new inflection point—similar to that of the 1890s and the 1940s—could reverse the depression triggered in the mid-seventies. But his description of the conditions of a potential new growth phase was alarmingly lucid; he spoke of chronic mass unemployment aimed, in the long term, at eroding real wages and workers’ self-confidence, com-bativeness and level of organization, as well as of significantly increased intensity of work leading to a pronounced rise in the rate of surplus value. And in fact, combativeness and confidence were indeed undermined by the failure of the revolutionary struggles of the seventies and eighties; unionization levels have plummeted globally; the maquiladora (assembly plants for re-export) is currently the best—although not only—labor intensification model; unemployment has grown and has been disguised as the informal sector to maintain the consumption capacity and apply labor flexibility.
Mandel also mentioned the massive devaluation of capital through the growing elimination of inefficient companies of all sizes, including many multinational ones, in a new leap towards the concentration and centralization of capital on the national scale and especially on the international one. And indeed we have witnessed the multiplying collapse and merger of companies everywhere. Other conditions mentioned by Mandel included new radical forms of reducing the cost of equipment, raw materials and energy, at least in relative terms (the outsourcing of costs is its most ominous example); the mass application of new technological innovations (Internet, micro-processors and biotechnology); and the new revolutionary acceleration of the rate of capital circulation (capital and consumption flows moving at supersonic speed).
WeÂ’re in a long expansive wave
with enormous migratory wavesThe innovations now being massively applied were relatively predictable components of the new growth phase. The flexibilizing, instability and intensification of employment and the outsourcing of costs have attracted the attention of scholars for over a decade now. In many industrialized countries it seemed very hard to roll back everything conquered over the centuries. Mandel wondered how the workers’ combativeness and resistance could be decisively broken without violently repressing the right to strike, which implied a no less serious attack on freedom of the press, the right to association and protest, etc. An initial answer was the reduction in employment rates, while another, more dramatic one has been illegal migration. The current migratory dynamic—extensive flow and repressive controls—recreates two enormous social groups: citizens and undocumented migrants. This recalls the master-slave binomial, an ideal culture medium for knocking out any possibilities of anti-systemic protest.
Mandel detected that the working class generally enters into the long new expansive wave scarred by the dearth of employment, reduced negotiating capacity and, in many cases, deteriorated self-confidence from the previous period. He predicted that a new expansive wave would multiply migration, arguing that the generally expansionist climate attracts enormous migratory waves of underemployed labor and impoverished small-scale producers of merchandise from the peripheries of industrial capitalism to the metropolitan centers. This, in turn, regularly supplies the industrial army with labor reserves and keeps the increase in real wages within “reasonable” limits—from the bourgeoisie’s point of view.
The poor ride into the realm of consumption
on the back of US$12 billion in remittancesThis new long wave is characterized by the fact that migration is providing a reserve army of people in the industrialized countries who have deteriorated citizenship and are willing to accept the lowest wages and no pay rises in an inflationary context. The undocumented migrants generally don’t unionize and have no possibility of asserting their rights. Capital thus obtains the high profit levels—a key element in the Marxist interpretation of the long waves—it needs for a new economic acceleration.
Mandel’s supposition came to pass because the capitalists took measures to make it happen: the introduction of new technologies lowered the wage bill because relatively fewer workers were needed, although this meant less spending power. Meanwhile, capitalism’s automatic dynamic produced an element not previously present in such a massive form or with such a forceful impact in previous migratory waves: family remittances. The US$12 billion in remittances are an essential element in the expansion of the Central American markets. The Wall-Mart retail sales empire, the not so friendly wings of TACA airlines and the propagators of the cellular communication fever all welcome remittances with open arms, exponentially extending their operations in the region. A growing preference for the dollar in deposits and credits—with the official dollarizing of El Salvador the extreme case—has shored up the dollar while dragging Central America toward the most somber episodes of its destiny. The icing on the cake is the Central American Free Trade Agreement (CAFTA) with the United States.
Oswaldo de Rivero sustains that in the 21st century big capital is sprinting towards the mass of consumers opening up to it through the best-off groups in China and India: around 500 million clients, a market equivalent to the United States and Europe put together. But capitalÂ’s appetite knows no bounds and rejects nothing, however trivial it might seem. The elites arenÂ’t the only ones entering the realm of the market. You donÂ’t need a huge income to buy a McDonaldÂ’s hamburger, a pair of Nikes, an iPod, a pair of Levis or even a Toyota (if you buy it on time, of course). In Nicaragua and Honduras many poor people visit the malls to window shop and in El Salvador theyÂ’ve already acquired citizenship in the market. They studied in Pollo Campero, did a post-grad at Pizza Hut and got their doctorate in Wall-Mart. And many others will follow.
If in the 19th century the capital circulation rate was speeded up by revolutions in transportation and telecommunications (the steam boat, telegraph, railways), a much more spectacular acceleration is currently being produced via the Internet, supersonic trains and cellular and satellite phones. And now remittances are contributing to that acceleration. A lot can be achieved by many people contributing a little bit and then a little bit more. Drop by drop, Central American migrants have filled up a tank of $12 billion, and the steady drip continues. Remittances provide a consumer power that would languish in their absence. Thanks to remittances, Central America has again caught the attention of foreign investment, that new totem to which everything must be sacrificed.
The golden age of foreign investmentAs an expression of the world economy’s previous expansive phase, the fifties and sixties were a golden age of foreign investment in Central America. The national banks made alliances with international banks and received copious investments. During the sixties, the Nicaraguan financial system’s foreign resources rose from 5% to 49% of the total. That dependency on foreign capital strongly affected the country’s two most important banks: the Pellas group’s Banco de América, in alliance with Wells Fargo Bank and First National Bank of Boston, and the Nicaraguan Bank—of Montealegre and the cotton producers—with a catheter to Chase Manhattan and Morgan Guaranty Trust. US capital did nothing more than strengthen a partner. Starting in 1944—the opening of the new expansive phase—91% of Nicaraguan exports were sent to the United States, compared to 67% six years earlier. And with the initiation of the import substitution model in that same period, the manufacture of footwear and clothing came to depend on imports for 47% of its inputs, a figure that hit 96% for the pharmaceutical industry. The rest of Central America had a similar experience.
The affluence of foreign capital tripled from 1960 to 1968 and North American investment in the region reached $5 billion. New firms were set up and soon monopolized the new factories and controlled many of the traditional industries. Some scholars went so far as to talk about the transnationalization of the Central American economy in that period. In fact, the regionÂ’s countries developed a dangerous dependence on international capital, figuring among the worldÂ’s comparatively most indebted countries and allowing their territories to serve as a legal base for the multinationals that wanted to exploit Central AmericaÂ’s free trade common market system.
In addition to the transnationals, other groups, mainly from the US south, came in search of lucrative and easy investments. In the United States they were known as “Sunbelt” capitalists to distinguish them from the traditional investors in the grey, industrial northeast. These upstarts represented an aggressive and unscrupulous capitalism whose strong investment tentacles included electronics, aviation, military goods, casinos, drugs, cabarets, hotels and tourism.
In Central America, they associated with the military regimes and jelled in the form of the fabulous businesses of Somoza and the Florida meat importers, joint investments by Howard Hughes and Anastasio Somoza, the Vesco-Figueres society and the businesses of Guatemalan dictator Arana Osorio with his “alliance partners” in Alabama, Florida, Texas and New Orleans. And so it came to be that a buoyant faction of national capital crystallized, linked to the distant small and medium non-internationalized capital to which it subordinated itself through the monopoly of credit and shifting of investments.
The foreign hands and pockets return The crisis of the seventies and the warring conflicts it unleashed led foreign capital—and some of its Central American associates—to pack up and leave. The depressive wave devastated the isthmus like a tsunami. The banks and other transnationals that had a growing presence in the sixties withdrew in the seventies and eighties and started to return again only in the nineties. The Holiday Inn hotel chain waited out the whole depressive phase—over 20 years—to install the hotels it had planned in the early seventies.
There is abundant evidence that the nineties witnessed the kind of foreign capital flow-back symptomatic of a growth phase. Various transnational banks, including Citibank, Westrust Bank International, HSBC and Banco Santander, opened operations in the region. And that wave is continuing. Larry Solberg, manager of the US Dairy Export Council, whose members annually produce over 85% of US dairy exports, forecasts that they will quadruple the $25 million worth of dairy products they sell in the region.
In 2005 alone, 28 US companies established themselves in Costa Rica. That same year, 334 foreign companies were recorded in El Salvador, their 28 nationalities ranging from the United States to Singapore. Excluding franchises, their investments accounted for 21% of its GDP in 2005. In 2007, Banco Industrial de Guatemala received a $300 million credit from Citigroup. The picture has been the same all over Central America, from Guatemala to Costa Rica. Having averaged $633.5 million annually in 1990-95, foreign investment exceeded $2.29 billion in 2005. For all that, this figure is still well below the nearly $8.27 billion in remittances sent home in 2005 by migrants who are investing their dreams in the region far more than big capital.
The already globalized elites
and an explosion of franchisesThe regionalization of financial markets and the prosperity of bankers both point to the existence of an expansive wave. Banks such as Banco América Central (BAC), Banco Uno, Cuscatlán and Mercantil AgrÃcola operate in more than one country in the region and Banco Uno has branches in all Central American countries. Judging from the intra-regional trade, Central American economic integration is also symptomatic of expansion. According to data from the Secretariat for Central American Integration (SIECA), it increased from $671.2 million to nearly $3.44 billion between 1990 and 2004. Costa RicaÂ’s Dos Pinos dairy company and HondurasÂ’ Lácteos Hondureños S.A.—which owns the Sula trademark—are expanding across the region. Guatemala buys 40%, El Salvador 30%, Honduras 15% and Nicaragua 6% of Dos PinosÂ’ $28 million in exports. The company also plans to expand in El Salvador, where the annual per-capita milk consumption of 70 liters is a powerful magnet for its products.
In 1994, the Guatemalan company Pollo Campero became the first Central American company to franchise, marking the beginning of an explosion in regional franchising, albeit with no accompanying legislation: the absence of franchising laws is a common denominator throughout the isthmus. According to the Central American Franchise Association (ACAF), 99% of the franchises operating in Central America had extra-regional franchisers in 2001. By 2005, 24% of the 156 franchises in the region were generated in Central American countries. These include trademarks such as Quick Photo, Los Cebollines and El Chinito Veloz from Guatemala; Expresso Americano of Honduras and the Nicaraguan Tip Top company. Guatemala leads the regional way, with a total of 25 franchisers.
Salvadoran economist Alexander Segovia holds that the Central American business elites “are already globalized and are no longer confined to the national market as a single arena of accumulation; they are now involved in regional and international markets. Some of these Central American groups are investing in 15 or more countries.” But their independent peak is proving not to be of such long duration. Some of their businesses are starting to be absorbed by the transnationals. A large part of intra-regional trade is conducted by and benefits transnationals like the British-Dutch company Unilever, which owns brand names like Naturas, Lizano, Dove, Axe, Continental, Sedal, Ponds, Lipton, Close-Up, Rexona, Knorr, Lux, Vinolia, Maizena, Margarina Mirasol, Rinso and Vasenol.
“Better to be a lion’s tail
than a mouse’s head...”In the 1960s, transnationals acquired Nicaraguan companies—like Metasa, Aceitera Corona, Nabisco Cristal—and established joint investments with national capitalists to create Plywood, Imusa, Fabritex, Cerisa. In the new expansive wave, however, their buyouts, mergers and co-investments considerably exceed their previous adventures, because they include a more vigorous market, natural monopolies (electricity and telecommunications) and social security. The latter has previously been exclusively state-run, but is now being cultivated by pension fund administrators (AFPs). To reduce risks, the transnationals enter hand in hand with native investors. Thus the Spanish transnational Unión Fenosa entered Nicaragua as a co-investment with the Pellas, CALSA (Lacayo family) and Montealegre groups. This guarantees it stability, while at the same time providing the local groups with a Spanish scapegoat for any grassroots discontent. PriceSmart entered holding hands with Banpro’s Ortiz Gurdián group.
Nicaraguan businessman Manuel Ignacio Lacayo met strong criticism for selling the MILCA bottling company, including its Coca-Cola franchise, to Panamerican Beverages Inc., a transnational that owns bottling plants in 12 countries including Mexico, Central America and the Caribbean. His response probably reflects the current feelings of many of his brothers: “It’s better to be a lion’s tail than a mouse’s head.”
Many imitated him, activating a chain of sales or mergers of Central America’s most significant companies: Café Soluble went to Nestlé; La Perfecta to Parmalat; Banco Uno and Banco Cuscatlán to CitiGroup; the Hiper-Paiz, La Unión and Palà supermarkets to Wall-Mart; the Solas’ CODISA and Facussé’s Cressida group to Unilever; half of the BAC to General Electric Consumer Finance; FINARCA to Nova Scotia Bank; the Lacayo’s NICACEL to Bellsouth and then Telefónica de España (Movistar); Nicaragua’s Tip-Top and Honduras’ ALCON to Cargill Corporation; and Banco Salvadoreño to HSBC and Banco de Comercio to the Canadian ScotiaBank. The hail of mergers includes the Granai Thompson and Continental banks with Industrial y Occidente; the Facussé businesses with Dole (Standard Fruit Company); the Panamanian Copa Airlines alliance with Continental Airlines; and on it goes.
We passed from the industrialization model through import substitution to the transnationalization model with the sale of industries and a few other shaky companies. The destiny of a great part of national capital is once again to be absorbed by global capital. Central America’s businesspeople become minority shareholders in the transnationals that gobbled up their businesses. Alexander Segovia surmises that they will “end up subordinated to transnational interests.” Put another way, transnational interests will be their interests. That’s their way of bathing in globality, a strategy not exclusive to the elites, although they can achieve more striking expressions than other social groups.
The agriculture sector is shrinking
and consumption is skyrocketingToday, national businesspeople are turning into pure capitalists, ever less interested in the events taking place within their borders. The elites are relocating their interests and tossing their hats into a transnational ring that is less tangible, but possibly with fewer risks. In a risk-filled society, the elites find many opportunities to reduce it. They not only expand markets and become a partner to transnational capital, but also look to move into less vulnerable economic areas.
The industrialized countries use increasingly fewer raw materials in their merchandise. The percentage has fallen by 40% in automobiles and 50% in medicines in just a century. The case of Japan is illustrative and extreme. It currently uses 40% fewer raw materials than in 1973. “Dessert economies” are being especially affected by new chemical technologies that are producing substitutes for coffee, palm oil and sugar, products on which five of the most powerful Central American families—Herrera in Guatemala, Cristiani and Dueñas in El Salvador, Facussé in Honduras and Pellas in Nicaragua—made their fortunes. They have thus switched their attentions to other rich veins, such as shopping malls, banking, tourism and hotels. The Dueñas and Palomo families passed from coffee and cotton to TACA, shopping malls and finance. This shift has had repercussions on the economic structure and on land use and prices.
Between 1980 and 2000, the participation of the agricultural sector in the GDP has fallen in all of the region’s countries, from 2% in Panama to 16% in El Salvador. The portion of the area dedicated to coffee growing in El Salvador dropped from 188,000 to 162,000 hectares between 1985 and 2002. Santa Elena, the enormous coffee hacienda located between Antiguo Cuscatlán and Santa Tecla, was transformed at the speed of light into a complex of urban developments and shopping malls. In Nicaragua, the most powerful elites switched from sugar cane and cotton to the sale of vehicles and provision of financial services. There are clients for their new range of businesses thanks to the growing weight of domestic consumption in the GDP. In 1994, private consumption already represented almost 90% of the GDP in El Salvador—the leading Central American country in the tertiary field—compared to 58.9%, 55.2% and 40.2% in Costa Rica, Germany and Singapore, respectively. El Salvador is proving to have a market as tempting as it is dangerous, and Nicaragua is reaching similar danger levels, with private consumption representing 81.4% of the GDP in 2006.
An unsupported shift:
Not even in the region’s “Little tigers”The tertiarization of the economy, demographic urbanization and growing weight of consumption mark the end of the agroexport model, but not the end of the traditional elites as some suppose. These elites they have been able to insert themselves into the new model, investing in the service sector and trading their companies for share options in transnational companies. The problem is that these shifts have no productive backing and lack a long-term development vision that considers, among other things, the physical problem of the relation between inhabitants and availability of water, or the capacity to provide food and energy services to the rapidly growing urban masses.
Other countries that are moving out of agriculture and into accelerated urbanization and consumption have made intensive investments in education and insertion into the global markets, first with industrialization and later the export of high technology. This has enabled them to lay the foundations for the expansion of consumption, imports and the service infrastructure required by megalopolises. With the exception of Costa Rica—with its new high-tech enclave—no steps have been taken in that direction in Central America. Our “little tigers”—El Salvador and Guatemala—may have a rate of 654 telephones per thousand inhabitants, close to Uruguay’s rate, but fall well short of its secondary education coverage, which is total, and its 41% university education coverage. The net secondary schooling rate is around 66% in most Central American countries.
The weight of high-tech exports is roughly 5% of the value of exports in most of the regionÂ’s countries. In comparison, it is 34% in Hong Kong, 33% in South Korea, 30% in China, 24% in Japan, 20% in Mexico and 16% in Indonesia. Countries located in or seeking to insert themselves into the international markets have experienced changes that the urbanized and consumerist Central American nations come nowhere near.
The Wall-Martization of the poorGiven this situation, remittances are called upon to play a key role in this thin strip of the world. Taking the cases of El Salvador, Guatemala, Honduras and Nicaragua, migrants sent $5.50 for every dollar that flowed in from big foreign capital in 2005. In Guatemala the proportion was 14:1.
Remittances are enabling market expansion, urbanization without productive backing and the massive graduation of consumers, as opposed to citizens. The elites and the state havenÂ’t made any transforming effort. TheyÂ’ve simply ridden the wave of opportunities opened up to them by the $12 billion produced by the expulsion of migrants. These transnationalized savings have allowed the formation of transnationalized elites as much as if not more than big globalized capital.
The transnationals became interested in Central America again when its markets began to expand and the remittances turned them from exclusionary to inclusive, providing the working class with a purchasing power it previously lacked. What’s new about the current model, according to Segovia, “is its underpinning: unlike the agroexport model, in which exchange rate stability and low or moderate inflation depended on the foreign currency generated by the primary export products, it is now sustained by the availability of dollars from the new sources of foreign currency, particularly the new nontraditional exports and family remittances.”
Remittances turn the previously excluded into a market and the companies prepare products specifically for them. Just as the elites incorporate themselves into the market in India and China, the remittances introduce the poor to the market of Coca-Cola, Pizza Hut and McDonalds. In El Salvador, fast-food restaurants such as Pollo Campero and Pizza Hut are full of working class remittance receivers. Pizza Hut was able to increase its motorcycle fleet in that country from 16 to 500 in 16 years thanks to looking beyond the middle classes to the power of remittances. Social mobility on the exclusive plane of consumption is an opportunity that opens up for those who manage to place family members in other countries.
Consumption in Wall-Mart, Pizza Hut and shopping malls is part of the effect of that ideological artifact known as “development,” in which a kind of “Wall-Mart development” is disseminated, a sensation of having entered the middle classes through a Wall-Martization of consumption. In the social race, Wall-Mart and the products of Unilever and Adidas are the universities that graduate people from poor into middle class. After all, McDonald’s came to us “to remove our loincloth” according to former Nicaraguan President Bolaños. There are two sides to the remittance coin because remittances are a passport providing the poor with access to the expanding world markets. They satisfy both the businessperson and the apprentice client.
The place of credit cards in
the big bang of consumptionExporting people to increase consumption is becoming a national strategy that operates alongside a certain systematic automation. From a territorial perspective, migration has become the main way to increase exports: Honduras sells to Hondurans living in the United States. The products are hybrid exports, because they don’t have to leave the country. They are acquired and used in Honduras, while the effective buyer—the person who generated the money that pays for them—is in another country.
Looked at this way, migrations and remittances are increasing Central American exports—free of transport costs—much more than CAFTA. From the perspective of globalized labor markets, the Central American countries have obtained a substantial increase in the payment of their labor force with a double advantage for the regional elites: the consumption capacity has substantially expanded without them having to increase wages by so much as a cent.
The local elites and their international allies have only taken on the work of adjusting their products to the “emerging market segments,” to put it in the metallic slang that’s music to their ears. The field of credit cards is one example of how previously excluded population sectors have become spoilt by big capital. With its 1.2 billion credit cards, VISA controlled 60% of the world credit and debit card market, 50% of Internet purchases and already offered remittance reception services through its VISA Giro card in 2005. In Central America it had 6.7 million cards, over 200 million transactions and a movement of over $11 billion a year. In Banco Cuscatlán alone it placed 65,000 VISA Giro cards between January and September 2005.
Credit cards used to be a service aimed at recognized sectors of proven solvency, but now that bankersÂ’ well-known discretion and cautiousness has been eroded by their appetite for galloping consumerism they are targeting the remittance-receiving masses. The role of remittances in this new market big bang can also be measured in other spheres examined below, although the conclusive evidence that can be gathered so far is extremely unequal.
Mini-housing for mini-salaries
and for remittance receiversThe housing market in El Salvador and Nicaragua is adapting to the remittances. Given the saturation and deceleration of the housing market in the upper-class segment, NicaraguaÂ’s urban developers have moved into houses selling for around $12,000 aimed at medium- and low-income families, which are also the sectors most affected by the countryÂ’s 400,000-unit housing deficit. In the city of Granada, Sun Real EstateÂ’s Praderas del Mombacho will have paved streets, sidewalks, 24-hour security, public lighting and drinking water. It was planned for merchants, teachers and police officers, but its price tags and the dosage of the monthly payments make it appropriate for remittance receivers as well. The Lacayo Fiallos construction company has also moved into that market with houses selling for $12,000 targeting families with a monthly income of around $400.
The Sandinista business elite backing Daniel Ortega also has interests in this sector. Tourism Minister Mario Salinas Pasos presides over Desarrollo Sooner, which is currently constructing 1,182 houses in Ciudad San Sebastián in Managua priced at about $25,000. The same is true for Prados de San Jerónimo in Masaya, whose houses are valued at $14,500, Conchagua in Corinto ($18,500) and Colinas de Verona and Praderas del Doral in Managua ($16,750). Some solvent migrants are investing in the new houses for speculative purposes. Such is the case of Manuel Salazar, a US citizen of Nicaraguan origin who lives in California. Salazar bought a house in Valle Santa Rosa, Ciudad Sandino, for $18,000. The $80 monthly mortgage cost for the cheapest houses are conveniently below the average amount of remittances sent back.
We find a descending intensification of the market: it is expanding to capture a sector that, judging from the 1995 and 2005 censuses, is making significant changes to its housing, generally on its own. In Chinandega, a department that has sent off masses of migrants, the percentage of concrete houses rose from 79% to 86.5% between the two censuses, while the proportion of houses with piped water increased from 29% to 41%. Such transformations are signs that the urban developers have slowly but cleverly picked up on.
In El Salvador, the Social Housing Fund, estimating a deficit of half a million houses, plans to expand its credit lines, which currently top out at under $22,000. The new line—of over $40,000—is said to be aimed at financing the middle classes. This new orientation is probably based on two factors: 1) the fact that the demand for land and housing, stimulated largely by remittances, has pushed up the prices of lots and construction; and 2) the discovery of a new market segment that is growing on its own initiative, without construction companies, and is made up of remittance receivers with a consumption capacity far higher than that of their Nicaraguan counterparts.
A study by San SalvadorÂ’s Central American University revealed that 80% of people building homes with remittances are doing so on their own; the remaining 20% are modifying houses built by private builders. Thus the insistence on running the remittances through the banks: only if they are linked to banks can they dovetail with the strategies of urban developers, with minimum risks for that sector.
TACA takes off, fueled by remittancesThe take-off and expansion of TACA Airline, based on Salvadoran capital, is another example of the power of remittances and migrations in expanding the markets and their profit rates. In 1979, TACAÂ’s assets were limited to three passenger planes, two cargo planes, a few limited travel routes within Central America and 300 employees. Twenty years on TACA had expanded its routes to the United States and South America and had 5,600 employees and a fleet of 81 airplanes, 33 with the capacity to carry between 110 and 150 passengers. By then it had acquired GuatemalaÂ’s AVIATECA (1989), Costa RicaÂ’s LACSA and NicaraguaÂ’s LANICA (1992).
One determining element in its expansion was the growing demand for flights from the United States as a result of the migratory flow of Central Americans to that country. In the 1990-2004 period alone, air traffic between the United States and El Salvador multiplied tenfold, from 123,000 to over 1.3 million people. The destinies with the highest demand are the states and cities with the greatest presence of Salvadorans: Los Angeles, Houston, Washington D.C., New York and San Francisco.
Although TACAÂ’s routes to the United States are relatively new, it has 21 daily flights to El Salvador from different US cities, and 70% of its passengers are Central American, despite the fact that American Airlines, Continental, Delta and United have all established daily operations in the regionÂ’s countries. In 2004, TACA absorbed 63% of the traffic between El Salvador and the United States. In 2005, it carried almost 2,500 passengers entering or leaving El Salvador every day. This was close to 56% of the total passengers from San Salvador, leaving just 14.6% to Continental, 13.3% to American Airlines and 2.8% to Copa.
The power of the “distant brothers”In 2008, TACA became the fifth largest airline in terms of passenger volume in the agglomerated Miami airport. TACA’s expansion is based on opening routes to the United States and Canada, which move an enormous number of migrants and their family members. This is visible in the social sector that now predominates in the Salvadoran airport: peasants shouldering their bundles or balancing them on their heads cross the waiting rooms to the amazement of neophytes.
Over 40% of the tourists coming into El Salvador are Salvadorans living abroad. According to Nicaraguan researcher Manuel Orozco, from the Inter-American Dialogue, “visiting the country of origin means more than staying with the family. The immigrants who come home to visit are also tourists and spend considerable amounts on enjoying themselves with their families, typically at least $1,000 per stay.” With them in mind, TACA created the Visit Friends and Relatives (VFR) service, which accounted for 40% of its income in 2004. It captured that segment by offering unconventional services, including excess baggage, special attention for children and old people, special ticket prices for important Central American dates—Mother’s Day is a particular biggie—and sponsorship of religious festivities, beauty pageants and sports tournaments.
Given that flow and its economic contribution, it’s not surprising that El Salvador is the only Central American country that pays homage to its migrants in the form of the monument to the “Distant Brother” at the gates of San Salvador, along the route from the airport to the city. The Kriete, Baldocchi, Dueñas, Palomo and Benecke families, together with many others, have increased their fortunes thanks to the direct effects of the migratory dynamics of their now distant brothers, whom they never looked upon fondly before.
Cell phones: another baited hookThe German transnational Siemens used to sponsor Real Madrid. Every time Ronaldo scored, it was reflected in SiemenÂ’s sales graph. In just one year of sponsorship (2003) SiemensÂ’ mobile phone account increased from 17% to 24% of the market. Some 62% of Spaniards interviewed in one survey said they had heard of Siemens thanks to Real Madrid. The Taiwanese BenQ company went running after such success and just before declaring bankruptcy acquired SiemensÂ’ mobile phone division and paid Real Madrid over $117 million to have its brand name appear on playersÂ’ shirts until 2010. Before collapsing, BenQ possessed 5.2% of the world cell phone market, placing sixth in the world and third in Latin America.
Transnationals have known how to bait their hooks to go after the consumer appetite for image and words. The sale of communication services is expanding and has a very active market among migrants and their families. Central America is Nokia and Motorola territory; together they are responsible for 65% of the 27.4 million cell phones sold in Latin America during the second quarter of 2005. According to experts, the key to these sales is the boom in demand in the emerging markets. Are they talking about migrants?
The América Móvil telecommunications company—known in some countries as Claro or Telecom—is number five in the world and number one in Latin America. It started with 12 million clients and now has 110 million, all but 2 million of which are cell phone customers. In 2006, it invested over $3 billion in the 14 countries where it has a presence, something that seems nothing short of reckless. In 2005, it invested $68 million in El Salvador for a total of $614 million since it set up shop there in 1998. Its investments in Honduras and Nicaragua can’t be far behind, as the clients from those two countries registered the company’s highest increase in 2005-2006, with growth rates of 90% and 80%, respectively.
The United Nations Development Program (UNDP), the World Bank and certain other bewildered institutions say that these countries have the lowest human development indices, the most scandalous poverty levels and national accounts that most resemble a business going under. But with a very different vision, América Móvil’s executive director in El Salvador, Alberto Davidson, applauds “the favorable economic conditions that each of the nations presents.” Such settled conditions are the basis of an accelerated expansion that led it to almost 5 million clients in Guatemala, El Salvador, Honduras and Nicaragua. That’s the equivalent of one in every seven Central Americans. In El Salvador alone, América Móvil has 936,000 mobile users and 986,000 conventional lines. In other words, one in every three Salvadorans purchases his or her telephone services from the Mexican transnational.
By 2005 there were nearly 2.5 million cell phones in that country. Just eight years earlier, there were only 20,122. The current proportion is five cell phones for each conventional line in a household. The Spanish transnational Movistar is hoping to increase its “penetration rate” from 30% to 50%, increasing its meager 15% in Nicaragua and reaching 70% in Panama. Even so, conventional lines continue being very profitable, with América Móvil obtaining over $130 million in profits in El Salvador alone in 2005.
The hunger for communications skyrocketed telephone consumption from 55 million minutes to 4.7 billion for national calls in El Salvador and from 262 million to 2 billion for international calls between 1997 and 2004. Other companies could extend their operations. Telemóvil, the owner of Tigo cell phones will surely make a big effort, having already introduced the Internet wireless technology WiMax, which has a range of up to 70 kilometers between the station and users.
Man cannot live by bread alone...According to the Superintendence of Electricity and Telecommunications, 46 out of every 100 Salvadorans have a mobile phone. So how have sales been able to multiply by 1,000 in a region in which over a third of the population lives on less than a dollar a day? Remittances and the priorities of migrants and their relatives are a key factor here.
Man does not live by bread alone: he also needs words. The telephone is the main means of communication between migrants and their families. The impossibility of communicating with rural areas where conventional telephone lines donÂ’t reach has spurred the introduction of cell phones. Some families of migrants have three active phones, one for every two household members, including pre-pubescents and babies. According to an UCA study in the region of Nonualcos, average monthly spending on cell phones is five times greater by people receiving remittances than by people who donÂ’t receive them.
In El Salvador, 94% of those who receive remittances communicate with their generous relatives by telephone. A third of the country’s telephone traffic is international calls, of which 87% are to or from the United States. According to UNDP calculations, charges for outgoing international calls—which are only 10% of the total traffic in El Salvador, as incoming calls have a much greater weight—may have totaled $28.6 million in 2002, of which $22 million corresponded to calls placed to the United States. The US Federal Communications Commission reported 35.5 million calls to El Salvador in 2000. That amounted to 300 million minutes and represented $180 million in income for the telephone companies.
How can so many poor people do so much...?A Rafael LandÃvar University study of Guatemalans living in West Palm Beach, Florida, revealed that the migrants and their families back home invest between $80 and $160 a month in communication, meaning that Guatemalans in that county alone spend nearly $222,000 a week and almost $12 million a year on communicating. Given that 37.5% of migrantsÂ’ relatives use cell phones to communicate, the companies offering that service pocket around $4.5 million a year.
The growth of cell phone sales and the thousand-fold multiplication of telecommunication minutes are more evidence that weÂ’re in another long expansive wave, as the capitalists have passed from the renting of technology to mass sales, something only possible through a disproportionate expansion of the markets. It was never thought that so many poor people could do so much. The remittances appeared and the technocrats at the service of the system lost no time sharpening their fangs: how to channel them from the marginal streams into the dominant current? It was a no-brainer: through the offer of irresistible services. The telephone companies, for example, offer special plans with extremely reduced rates, family plans for Salvadorans abroad and additional reductions on weekends and special days like MotherÂ’s Day, FatherÂ’s Day, Christmas and New Year.
Western Union: guest of honor
at the remittance banquetThe telephone companies, airlines and urban developers are lapping it up. But those really ruling the roost—with minimum costs—are the remittance transfer companies. According to information from the US Transnational Institute for Grassroots Research and Action (TIGRA), a network of 158 immigrant groups, Western Union conducted 128 million transactions in 2006 that generated it a billion dollars in profits. The official figures are somewhat less spectacular, but still incredible.
The opening paragraph of Western Union’s 2006 annual report, posted on its web page, reads, “The words Thank You have always been synonymous with Western Union. Throughout our 150-year history, our business has been centered on making people’s lives easier and more productive. Without Western Union, people all over the world would not be able to work, travel or provide for their families in the way that they currently do.” There follows a significant set of photographs that show Latin children and Indian and African women explaining how the transfer of remittances made it possible for them to study, while Caucasian married couples comment on how convenient the opening hours and location of Western Union’s branches are for paying their bills or exercising philanthropy.
The cold, hard financial indicators are preceded by sugary slogans like “With each transaction comes a feeling of thankfulness and pride,” “Sending so much more than money” and “Connecting families around the world.”
Once the reader has been softened up with 32 pages of such affectation, the figures appear. Between 2002 and 2006, Western Union obtained $17.9 billion in gross receipts, a 63% increase, and $3.72 million in net income, an 85% in-crease. Income from individual client-to-client transactions—the category covering remittances—represented 84% of the total. Un 2006, Western Union shares were valued at between $18.58 and $24.12. To obtain such profits and “position itself” in the market, Western Union charges 11.99% interest for transfers of $200 from certain locations in the United States to Central America.
To this is added the earnings for changing dollars into national currencies. In 2006, revenue from transaction fees was just under $3.7 billion, while the income from changing currency was nearly $654 million, almost 15% of the total. All Central American migrants who sent remittances back to their home countries contribute to Western UnionÂ’s exchange rate treasure chest, except Salvadorans and Panamanians, which have dollar economies. That explains why the cost of an average transfer to El Salvador is the lowest in the region (4.45%), in marked contrast with the cost of sending money to Nicaragua (6.93%) and Honduras (7.13%).
Western Union is omnipresent. Billboards announce it in Condega and San Carlos, Zacatecoluca and San Miguel, Chichicastenango and Antigua, Tocoa and Siguatepeque, Cartago and San José. According to very recent calculations (February 2008) by analyst Manuel Orozco, $600 million of Nicaraguan remittances are transferred through agencies such as Western Union and Money Gram. The latter made 250 million monetary transfers in 2005 and earned around 12% of what it transferred. The Inter-American Development Bank (IDB) calculated that in 2004 Western Union transferred 43% of the total remittances in Honduras, 33% in Guatemala and 26% in El Salvador.
A river of dollars with able anglers Even if the money transfer agencies only earned a net 10% of the amount transferred in the whole of Central America—a lot circulates outside their channels and the dollarization in El Salvador deprives them of income from currency exchange—their revenues in 2007 would be close to $1.2 billion. If we take the estimates of the total remittances transferred through Western Union and combine them with the average transfer costs and Western Union’s gross profit percentage relative to revenue (21%), then Western Union made a minimum clear profit of $43.7 million from the remittances to Guatemala, Honduras and El Salvador alone, after deducting investment costs to expand operations, depreciation, amortization and taxes.
These rivers have been very profitable for certain anglers. The fortune of Nicaraguan businessman Piero Cohen Montealegre catapulted after he founded the Airpak group, a holding company that acquired Western UnionÂ’s exclusive franchise in Central America. The insistence of NGOs, analysts and migrantsÂ’ associations on reducing the rates runs up against a particular interest of political imperialism: the US Treasury received over $1.8 billion in income tax from Western Union between 2002 and 2006. In 2006 alone, Western Union contributed over $421 million in tax.
The development myth:
“Catch up with the rest”There’s no room for doubt that remittances are transforming the Central American economy. To all the evidence piled up here, we have to add an explosion of tourism among migrants who visit their country of origin, a land market energized by migrants’ investments, the adoption of Americanized urban consumption patterns aiming at middle-class status among rural families, a growing appetite for goods “made in the USA”—or imperial brand names even if they’re “made in Bangladesh”—and many other signs that while some choose where to live, others want to decide how to consume. As these transformations have significantly contributed to market expansion, the prophets of optimism are springing up everywhere. The pernicious myth of development has been rewritten various times, but this time with a greater print run and a flashier dust jacket.
By way of minimum precaution, it’s worth taking a quick look at the previous editions and their Sirens’ songs. According to Immanuel Wallerstein, development on the operational level was defined everywhere as ‘catching up with the rest’ or eliminating the lag. Naturally everyone involved took for granted that it would be a long, difficult task, but also took for granted that it was possible, as long as the right state policies were applied.
In the Cold War context, each bloc of countries—segmented by their ideological predilections—obtained resources from the dominant power in their faction to apply a range of policies that promoted either a capitalist or a communist paradise. Woodrow Wilson, Franklin Delano Roosevelt and John F. Kennedy were enthusiastic proponents of this creed, while Lenin did something similar from the USSR. According to Wallerstein, “When Lenin launched the slogan ‘Communism equals the Soviets plus electricity’ he was putting forward national (economic) development as the prime objective of state policy. And when Khrushchev, decades later, said that the Soviet Union would ‘bury’ the United States by the year 2000, he was venting supreme optimism about ‘catching up.’”
Development never came to these landsThe underdeveloped countries lined up behind one or the other of the two creeds. Both promised development: catching up with the industrialized countries. The significant expression of Ghanaian independence leader Kwame Nkrumah, “Seek ye first the political kingdom, and all else shall be added unto you...,” was interpreted by many social movements as “Seek ye first socialism, and all else shall be added unto you.” Similarly thinking the rest would be added unto them, others sought capitalism—savage or domesticated.
As Wallerstein saw it, “The possibility of the (economic) development of all countries came to be a universal faith, shared alike by conservatives, liberals and Marxists. The formulas each put forward to achieve such development were fiercely debated, but the possibility itself was not. In this sense, the concept of development became a basic element of the geo-cultural underpinning of the world-system,” embodied in the unanimous UN decision to designate the 1970s “the decade of development.”
But development did not come to Central America during that decade. What came instead was the energy crisis and a chain of civil wars plagued with bloody massacres. In Central America between 1950 and 1979, developmentalism adopted the form of industrialization by import substitution. In that post-World War period, the boom in the prices of the region’s export products brought juicy profits that were invested in diversifying and technifying exports. Cotton, meat and sugar were added to coffee and bananas, while a substantial increase in per-hectare yields thanks to the short-term effect of the “green revolution” allowed optimism to soar.
The industrialization process accompanied the creation in 1960 of the Central American Common Market, which provided fiscal incentives to new industries. Through the Central American Bank of Economic Integration, an important financial injection from the United States—the power also sponsoring Central America’s military regimes—was channeled towards private productive infrastructure. Thanks to the growth phase, the Central American countries saw inter-regional trade multiply sevenfold.
A spectacular failureBut the experience took on water at several points. As the industries were not installed according to any regional plan, despite the initial suggestion of the UNÂ’s Economic Commission for Latin America and the Caribbean, they started competing among themselves. The winners were Guatemala and El Salvador, the countries with the greatest population density and lowest salaries. The industries substituted the importation of non-durable goods, but increased the importation of raw materials and semi-finished capital goods to build the new factories; on top of that the crisis of the seventies ruined the experience by upsetting the balance of payments.
Industrialization was a spectacular failure. The weight of imports as a percentage of the GDP increased in 1980 between 26% in Guatemala and 51% in Honduras. Meanwhile, job creation was meager; between 1958 and 1972 the economic integration only created around 150,000 new direct and indirect jobs—3% of total employment and 14% of the overall increase in the work force of all five Central American countries that joined the treaty. Historian Héctor Pérez Brignoli summed up the situation like this: “To put it more simply, it could be said that the bill for development was increasingly hard to pay.”
El Salvador: From “paradise” to hellWere there any winners in this whole adventure? Sure there were. As usual, the population bore the cost and the local businesspeople and foreign investors reaped the benefits. That period was the origin or the take-off of several individual fortunes. The creditors and suppliers of the inputs demanded by these always embryonic Central American industries also won. A principle of casinos everywhere began to impose itself at that time: even those who don’t bet can end up losers. Only in Costa Rica were the tragic effects attenuated, but at the price of an increase in public spending, growing external indebtedness and a mounting deficit in the trade balance.
The Salvadorans, who have situated themselves at the apex of several models, set the pace. Just as El Salvador is the model country in the productive use of remittances and family remittances, it was the model and most mimicked country in the Alliance for Progress. US Presidents Kennedy and Johnson saw to it that El Salvador received more funds than any other country of the isthmus: US$63 million just between 1962 and 1963. The next year, when the country was governed by Colonel Julio A. Rivera, the winner of fraudulent elections, the CIA baptized El Salvador as “one of the hemisphere’s most stable and progressive republics.”
In 1969, wrote historian Walter LaFeber, 300,000 Salvadorans—one in every eight citizens—fled this “model” nation of the Alliance for Progress to seek food and work in neighboring Honduras. Ten years later, the five organizations in the Farabundo Martà National Liberation Front (FMLN) had erupted like the five volcanoes symbolizing Central America, transforming the country into a world model of guerrilla warfare. Hölderlin’s depressing but right-on conclusion resounds through this experience: What has transformed the state into a hell on earth has always been precisely man’s effort to convert it into a paradise.
A major scam with a misfortunate legacyThe most serious part was the debt that was barely embryonic before the developmentalist escapade but left deep and long-term after-effects. It was a very simple capitalist mechanism: the countries of the Organization of Petroleum-Exporting Countries increased the price of oil, the banks into which the surplus had been deposited looked for clients, the energy crisis created clients and the Development myth provided the ideological justification. Worse yet, the interest rates on loans taken out with abandon before the energy crisis suddenly shot up, creating Latin AmericaÂ’s foreign debt crisis almost overnight.
Anyone who thinks the Development chimera wasnÂ’t a great swindle should take a look at the most significant figure of that huge adventure: the foreign debt. In his book, Los nuevos amos del mundo y aquellos que se les resisten (The worldÂ’s new owners and those who resist them), Swiss economist Jean Ziegler reminds us that during the 1970s, Latin AmericaÂ’s debt reached nearly US$60 billion. By 1980, it had more than tripled to US$204 billion and a decade later it had reached $443 billion. By 2003, the year his book was published, it was around $750 billion. This debt, Ziegler explains, meant a transfer of a mean $25 billion to the creditors each year for the past three decades. Put differently, during these thirty years, between 30% and 35% of the income obtained from the export of the continentÂ’s goods and services had to go to service the debt each year. In 2001, each Latin American owed an average of $2,550. In 2005 each Central American owed an average of $770.
HondurasÂ’ foreign debt had its most rapid growth in the sixties and seventies thanks to the developmentalist-inspired state intervention in services, some industries and credit dedicated to industrial and agroindustrial development, according to social scientist Marvin Barahona: “The construction of infrastructure works like the Yojoa-RÃo Linda and El Cajón hydroelectric projects, which were fundamental for national industrialization, constituted a significant weight in the state investments and in the overall value of the foreign debt.” The illusory promise of development had a cost that Central Americans are still paying. Meanwhile, the leftist develop-mentalists announced that the dollar was about to plunge and that US imperialism was about to collapse. And for that, we Central Americans are still waiting.
Between dream peddlers
and gurus of developmentalismThe Central American countries have been bouncing from panacea to panacea. Forty years ago we had the Alliance for Progress, and now the catchwords are “holdings” and “clusters,” according to a vision popularized by economist Michael Porter in the nineties. And of course ideologies and ideologues always accompany certain economic trends: the creed of “growth optimism” and “guaranteed full employment” was widespread during the accelerated postwar growth period of 1948-68. Then, once we had come out of the wave of depression that followed, we had the prophets of the final judgment and “zero growth,” as well as the rise of monetarist prescriptions to fight the inflation attributed to the previous Keynesian policies.
Now the development banners are emblazoned with the word “clusters.” Capitalist strategies lace the discourse of academics turned guru. This new wave made it possible for Carlos Alberto MontanerÂ’svisit to Nicaragua to give a talk pompously and dishonestly titled “How to overcome underdevelopment and become a first world country in only two generations.” He wonÂ’t be the last development guru, but heÂ’s certainly the closest one so far to Gabriel GarcÃa MárquezÂ’s character in Blacamán el bueno vendedor de milagros, standing up on a table “between jars of specifics and herbs of consolation that he himself prepared and hawked at the top of his lungs.”
Miracle sellers like Blacamán and optimistic gurus have multiplied in this growth phase. Clinging to their manuals and recipes, they refuse to bow to all the evidence of infernos and bogs that their projects generate. In El Salvador, the model country, the institution that has most influenced the state’s economic policy in the past twenty years is the Salvadoran Foundation for Economic and Social Development (FUSADES). Following its proposals to the letter, the country achieved an economic growth rate of 5.9% for 1989-1994. But it then fell to 3.9% over the next five years and 1.9% in the next. The policies that sought a revival of agricultural and industrial exports also failed.
El SalvadorÂ’s cumulative economic growth in 1990-2004 was basically provided by the service sector (64.8%) followed by the products assembled for re-export in the maquila industry (31.1%); only the remaining 4.1% came from agriculture, according to the UNDP. Given the emigration of so many Salvadorans, the possibility of catapulting the agricultural sector into any kind of major role increasingly depends on the immigrant labor force of Nicaraguans and Hondurans. But can that option really turn into a continual movement?
Selling soap bubbles in dwarf economiesThe reform of El Salvador’s pension system—another new World Bank and IMF development myth recipe echoed by FUSADES—left a $10 billion actuarial deficit. The national budget has assumed the financing of that deficit, which represents 2% of the GDP each year. Meanwhile, the trade gap quintupled, from $666 million (13.8% of the 1990 GDP) to just under $3 billion (nearly 20% of the 2004 GDP) in those same 14 years. Finally, to seal the economy’s dependence on remittances, the imports/GDP ratio has been rising incessantly, from 27.7% en 1990 to 42% in 2004.
FUSADESÂ’ dream sellers not only couldnÂ’t pull the appropriate reforms out of their hat, they couldnÂ’t even achieve their own anticipated results. Their policies ended up submerging the country in a round-robin state of dependence: the precarious economic situation induces migration; the migrants send remittances and the remittances sustain the growth of imports, replace the pension system, make possible the expansion of the service sector without corresponding productive growth, atomize solutions and consequently impede the required radical reform. If thatÂ’s going on in the small but robust Salvadoran economy, what can we expect from the shrunken, fragile and dried up economies of Honduras and Nicaragua? It is a question optimists refuse to entertain, turning a blind eye to the evidence and continuing to hawk their rainbow-colored soap bubbles.
Jesuit academic Ignacio EllacurÃa was always fond of distinguishing between small and dwarf universities. The first could grow over time, he would say, but the second were genetically destined to stay as they were. The development myth was the best orchestrated fallacy to veil the reality that in the world capitalist systemÂ’s distribution of economic power Central America has dwarf economies, not small ones.
The dangers of the current modelNow we have a new recipe. The new fairy tale is based on the pompous bankizing of remittances and development policies based on their inexhaustible flow. Remittances arenÂ’t the only link between migration and development, but they are the most heralded, and the one that the policy makers, sellers and imposers of the IDB, IMF and some binational cooperation agencies think about most. Many of them want to turn remittances into the cornerstone of that promise of progress and development.
To avoid being lulled by that tune, let’s remember the distinction between development and Development. The first alludes to the geographically unequal and profoundly contradictory processes that underlie capitalist accumulation. The second refers to the projects of intervention in the Third World that emerged in a context of decolonization and cold war. Remittances were already contracted for development well before it occurred to anyone to mention their possibilities in Development. Any recruiting of remittances for the latter without bearing in mind their role in the former is fetishistic because it takes them to be the mere accumulation of transferable and bankable wealth, isolated from the conditions of their production, transfer and consumption. And it hides a monumental irony: the new development myth tells the story of those expelled by the system who rescue and perpetuate the worst of that very system—recycling them and making them into heroes for sending money home to their relatives.
The new “take-off”—let’s call it that to return to the now discarded metaphor of W.W. Rostow—is called “productive use of remittances.” Admittedly US$12 billion annually injected into such small economies is nothing to sneeze at. But those who think it’s manna from heaven that will fall for all of eternity are sadly mistaken. There’s a ticking clock that needs to be explored. The fact that the growth of commerce and services are increasingly underpinned not by solid productive development but by the import of goods made possible by remittances is both important and threatening. But there are no signs that either the state or the private sector has any intention of correcting that skew.
Meanwhile, the banks are financing production ever less. Segovia warns about this danger in the current model, noting that “in the previous agroexport model, the banks heavily financed the agroexport groups. Today, the Central American banks have cut loose from the local sectors and from real production. Their logic is to make a profit in any sector that offers the greatest income. For that reason, those who are studying this evolution predict that in the next five to ten years 70% of all loans from Central American banks will be for personal consumption and not for companies.” This trend is already obvious in Nicaragua, where personal loans increased from 4% of the national financial system’s portfolio in 1992 to 33% in 2007.
The model is rife with contradictionsThe problem of the multiple contradictions running through a model dependent on remittances is yet another danger. Given that the Central American governments havenÂ’t been able to pull off the longed-for transformation of the economic structure, the system will depend on the flows continuing to grow as they have so far. But this butts up against diverse systemic tendencies of economic imperialism, political capitalismÂ’s territorial interests and group initiatives.
First off is the eternal contradiction of capital: technologies reduce labor to reduce costs, but the system has an imperious need to increase demand. In the case of remittances, this means that capital needs more people receiving remittances but at the same time restricts the opportunities to offer employment to those who have to send them. Technology and re-tooling reduce employment opportunities and are therefore adopted as strategies by businesses that want to be competitive. ItÂ’s hard to picture a world with more remittance receivers and fewer remittance senders. Central American remittances depend on the United States maintaining or even increasing wages as well as increasing the demand for labor, but the demand for labor is inversely related to technological advances and wage increases go against US competitiveness.
The second factor is the strategy of the migrants and the churches and NGOs that support them. One of their main objectives is family reunification. Remittances in the reunified family simply turn into family income. The sending of money, telephone calls and holiday trips home necessarily tend to drop with family reunification.
Territorial logic v. economic logicAnd in the third place are the restrictions based on a territorial logic, which are sometimes at cross purposes with economic logic: the migrant-receiving countries tend to multiply the legal, physical and police barriers to the migratory wave. But if the number of migrants doesn’t increase, there will be no rise in remittances. In the short run, this contradiction can be put off by countries with a conscious interest in remittances—El Salvador for one—negotiating residency permits and amnesties for its expatriated nationals.
Territorial and economic logic can join together through a moderate deportation policy, which maintains a growing group of remittance senders but doesnÂ’t permit family reunification. A benevolent migratory policy that allows family reunification would be catastrophic for the current model, as would be cutting off the migrant flow altogether. This explains the ambivalence of the current migratory policies: moderate amnesties and Temporary Protection Status with deportations. ThatÂ’s why states negotiate residency but not naturalization, which would help dissolve the emigrantÂ’s national links and, of course, the remittances.
On this point the logics of territory and capital complement each other. Both produce—although by apparently contradictory routes and very different means—the perfect subject: a worker with deteriorated citizenship and with a group of relatives in the country of origin that depend on his or her savings.
The “win-win-win” strategy is a fallacyThe proclaimed win-win-win strategy—in which the migrants escape unemployment, the host country receives the temporary labor force it urgently needs and the country of origin receives remittances and at least temporarily decompresses the demand for public services—doesn’t actually exist. The way it really works is loose-loose-win. The country of origin loses because it develops a dangerous and over time catastrophic dependence on remittances and the migrants lose because they are ripped out of their own culture and can never belong to the new one; their citizenship withers. The only winner is big capital, which obtains the ideal merchandise: cheap workers and aggressive consumers, the equivalent of DINKS (Double Income No Kids), considered consumption kings because they are entirely dedicated to generating and consuming income. Migrants, as an equally stereotypical category, are dedicated to working and beefing up their relatives’ consumption.
Producing aborted citizenships is an attempt to resolve another contradiction in the system, but like the ones mentioned above it requires a continual injection of migrants to keep working class wages low. When migrants start considering themselves citizens with rights, when they stop having a deteriorated citizenship, the system needs more migrants, or sub-citizens, to avoid an inflationary domino effect on salaries. It needs that dual society that harks back to slavery, only now the division is citizens and non-citizens. The new slaves donÂ’t need shackles and chains. They simply are denied a paper that accredits them as citizens or as legally established residents.
Time implacably moves onIt is essential for those who want to perpetuate this model, or at least do nothing to change it, that the remittances continue to grow, as they are the fuel that powers the economic motor. And this can only happen by continuing to export more Central Americans.
Over time, family reunification or the death of remittance receivers reduces the flow, but emotional distancing can have the same effect. In 1991, US-Nicaraguan researcher Peter Marchetti was the first to note a tendency for remittance amounts to slack off. His research showed an inverse relationship between the time since the migrants left and the amount of money they sent back to Nicaragua. Families whose relatives had migrated abroad less than a year before were receiving a monthly average of $84.95. The monthly average for families whose relative had left between 1 and 5 years earlier dropped to $73.19, while families whose relatives had been away for over 5 years received an average of just $65.72.
Marchetti hypothesized that subsidies such as free lodging and food offered to the migrant during the first year by kinship networks abroad permit more generous remittances, which decrease as the migrant assumes more personal economic responsibilities.
Fifteen years after Marchetti’s findings, researcher Eduardo Baumeister found that the proportion of “Latinos” who send remittances appears to have the form of an inverted U, a model that holds true for Nicaraguans. Baumeister suggested that the smaller proportion of remittances sent by those who migrated a long time ago could be explained by a loss of ties to the original household, and the similarly small proportion sent by very recent arrivals by the cost of adapting to the new context and the economic limitations to immediately generating stable remittances, particularly in the case of undocumented migrants.
How many must migrate in the future
to maintain todayÂ’s remittance rate?Both academics agree that the time factor has a declining effect on remittances in the medium or long run. Both MarchettiÂ’s downward slant and BaumeisterÂ’s inverted U indicate that a continuous growth of remittances requires an ongoing increase in migrants. A pending task is to investigate what flow of migrants would be required in the next 20 years to maintain the growth of remittances weÂ’ve seen in the past 10 years.
Following the norms of the current economic model, this merchandise called “migrants” has to be produced on a larger scale. Exporting Nicaraguans, Hondurans, Salvadorans and Guatemalans stokes the fire of development. But not all Central Americans are exportable. Those between 18 and 25 years old are the most valued. And unfortunately, this “merchandise,” like all others, has its vicissitudes. Not all products function alike.
The migrants that are todayÂ’s Economically Active Population will eventually retire. If they manage to legalize their residency, they will demand social assistance and pensions. Will the flow of young migrants continue to maintain the volume of active contributors for the pension system to function? Will they always behave as submissively? Will the same mass always want to leave the country they were born in? The price of these migrants could vary.
Remittances are the rich gourmand’s crumbs with which the wealthy make more breadRemittances are the crumbs from the table of the wealthy gourmand that the migrants surreptitiously sweep up. But the wealthy gourmand’s greed knows no bounds. He knows that all those crumbs can be made into many new loaves. So he comes back for them, offering cell phones and other tempting goods in exchange. The paradigm of the rational subject who makes the wisest decision—the epistemological pivot of the “productive use of remittances”—is used as the basis for constructing the tall tale of the likelihood of choosing a wise end use for the remittances.
In the story hatched by this paradigm, the characters are as flat as those of a Dickens novel. The 19th-century novel, with its one-dimensional characters, has certain advantages: it shows some facets of reality in black and white, with such accentuated features that they are easily recognizable, ideal types. But it also reduces the reality of other facets, creating a caricature. In daily life, remittances are only what theyÂ’re allowed to be. They donÂ’t come in a single package: they come as financial remittances and as cultural remittances, i.e. as money and as the appetite for things made in the USA. And that appetite expands faster than the remittances.
The strategy of the poor is thus co-opted by the powerful. Everybody wants to sit at that opulent material banquet, drinking and eating more than is good for them, devouring rights and the environment as they go. But even at that, a certain amount of the income generated in the industrialized countries ends up relocated back home, so the companies multiply their investments where this income ends up. The corporations, their mergers and their franchises follow the remittances. Economic filibusterism prefers the McDonald model over the Vanderbilt model, but itÂ’s no less aggressive. In this growth phase, the big transnational companies are in a better position than ever to extract the benefits even of the most perverse effects of their race for accumulation: the need to have a segment of the population migrate and support those who stayed behind by providing 20-35% of their income.
The psychotropic and stupefacient ideologies of development that now talk about “productive remittances” ignore all the serious problems such as environmental deterioration—waste management, deforestation, water scarcity… Some countries are already experiencing a serious physical and social imbalance whose solution cannot be bought with remittances. The proportion between population and sources of drinking water in El Salvador is perhaps the most dramatic example in the region and will be the first to explode. Nicaragua currently sells meat and cheese to El Salvador at the cost of reducing the animal protein consumption of its own citizens. Will Salvadoran remittances end up buying water and leaving the poor of Nicaragua and Honduras to go thirsty?
Obstacle, opportunityÂ…
or on the verge of collapse?It is often asked whether remittances are an obstacle to growth or an opportunity for greater growth. The fact is that they are being used by certain economic groups to expand their markets and insofar as they sustain the trade deficits with the United States theyÂ’re a key element of the free trade agreement. ItÂ’s these economic groups that are getting fat off of this situation. These facts help determine the function and end use of the remittances and show how the strategy of the poor has been co-opted by transnationalized elites.
But the question doesnÂ’t go far enough. A more incisive one would be: if El Salvador is breaking a new path, will it collapse before everyone emulating it catches up? Or: if remittances are an unexpected element in KondratieffÂ’s cycles, for how long and with what consequences can they modify its duration, mitigate its effects or even reverse its direction? As the receivers of these remittances, the Central American nations havenÂ’t planned for a possible shift of circumstances that could leave us facing a very dark future in which they start drying up like our rivers are doing.
José Luis Rocha is a researcher for the Jesuit Service for Migrants of Central America (SJM) and a member of the envÃo editorial council.
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a monthly magazine of analysis on Central America