The Washington Post recently ran an opinion piece by Colbert I. King about immigrants to America and the remittances they send back to family and friends in their home countries.
Mr. King was speaking of immigrants to the United States but this holds some important lessons for South Africa as well. It also, in fact, challenges a fundamental belief widely held, which I think is in error as I suspect Mr. King didn't mean to do this.
"Dry sounding 'workers' remittances' represent money that migrants from Honduras, Guatemala and El Salvador send back home to their families and communities. By any measure, remittances have more transformative economic power in El Salvador, Honduras, and Guatemala than all U.S. aid contributions to those countries combined."
– Colbert I. King
While the U.S. attempts to improve the lot of the nations from which people are fleeing, they don't do nearly as much good as the migrants do with the few dollars they send home regularly from their earnings.
People are key to economic progress, not their governments
As the saying goes, 'a few dollars here, a few dollars there, pretty soon we're talking real money'. The Post reports 20 percent of the GDP from El Salvador and Honduras is money sent home by migrants, while in Guatemala it is 14 percent.
Here's the key point of Mr. King’s column; political leaders in these recipient nations 'can't brush past the fact that their people residing in the United States are putting food on the table and covering family emergencies and medical expenses back home. They, not their governments, are the lifelines for their families.'
That is the key to economic progress. The people themselves, 'not their governments, are the lifelines for their families.'Imagine how these people spend the money they receive versus how their local governments would spend it. The people buy food.
Governments fund junkets overseas for politicians, put weapons in the hands of agents of the state, finance corrupt state-owned enterprises, throw money down the toilet on useless projects that benefit no one but the bureaucrats and politicians who do the spending, along with a few of their friends and relatives.
Political manipulation
Governments everywhere are inefficient when it comes to spending other people's money.
Billions have been squandered on South African Airways (SAA) to keep the badly run company afloat. Every day it operated, it destroyed wealth. It made the country poorer, not richer. For years, market advocates have been saying SAA should be privatized and sold off.
The government refused to listen until recently and has now sold 51 percent, which is just about 49 percent shy of the optimal solution.
Public enterprises minister Pravin Gordhan told the press government would no longer bailout the company. SAA has still got enough control so political manipulation of the company will be hard to resist and the very people who have proven themselves inept at running a business will have a major influence on policy.
With them owning so much of the airline they will always be tempted to bestow special favours on SAA, at the expense of better-run competitors. Companies that actually create wealth will face handicaps meant to benefit the one company where 'profits' largely belong to the state.
People spend their money better than the government
In reality the average person spends their money better than government. One reason is when the average person spends money it is actually their money they are spending. Politicians, as Donald Trump liked to brag, are always spending someone else's money.
Economic growth is a bottom-up phenomena, it's not something politicians create. At best they can get out of the way and let it happen, more typically they run interference. Too often they are like football players who kick the ball into the wrong goal , scoring points for the other side.
It isn't they intend to destroy wealth, it's just they don't have any of the right incentives to produce wealth. The people whose money they are spending, on the other hand, do have the right incentives.
The remittances to the people of Central America from their immigrant relatives in America do a lot of good, while aid to those governments rarely does. Leaving the money in the hands of the South African people, instead of channelling into the pet projects of politicians, will create more jobs and more wealth.
A people set free produce wealth. A government set free produces poverty. A people shackled, live in misery. A government shackled, encourages prosperity.
This article was first published on BBrief on 12 July 2021.