Brain Drain Politics: Ecuador’s Gambit

Ecuador’s foolish gambit

From AP

Galo Guarderas is starting off on five years of study in Spain to make himself an expert in photovoltaics, a vital field for a world tapping into solar energy.

The price tag for the studies is more than $150,000. But the 47-year-old professor of electrical engineering won't owe a cent for his doctorate.

His country, Ecuador, is footing the bill.

Guarderas is a pioneering participant in a new program that aspires to convert this small South American nation into a global competitor. In exchange for each state-paid year of school, the professionals guarantee to work at least two years back at home.

President Rafael Correa isn't just bent on staunching brain drain, in which talented people flee developing countries for lack of local opportunity. He's determined to reverse it, create a brain gain.

"Without human talent Ecuador won't advance," Correa said in a speech last month. "We lack the minimum critical mass of top-flight professionals needed to spur the country's development."

Ecuador's deputy minister of science and innovation, Hector Rodriguez, said the goal is "a radical transformation" from a country whose exports are 77 percent raw materials, chiefly oil, to one that exports technology.

This is represents another example where when you are the hammer everything looks like a nail.

Lavishly spending money for “foreign education” to supposedly solve the nonsensical brain drain issue does not deal with root of the problem particularly “talented people flee developing countries for lack of local opportunity.”

Yes the problem, to repeat, is THE LACK OF ECONOMIC opportunities because of Ecuador’s socialist government (new age or 21st century socialism). Economic opportunities are not driven by education alone but by investments or through a political environment which encourages businesses or enterprises (economic freedom).

In the US, contrary to political wisdom, science or math graduates have not been guaranteed employment.

Feel good policies (to get elected or to remain power) like always will eventually just blow up. In politics, insanity or doing the same thing over and over again and expecting different results represents the norm.

More Brain Drain Canard: When All You Have is a Hammer, Everything is a Nail

The politically colored term “Brain drain” can be seen as an example of what George Orwell labeled as “doublespeak” or language that deliberately disguises, distorts, or reverses the meaning of words.

Here is the Inquirer,

The brain drain has become a bigger problem in the last 12 years, as the yearly exodus of people trained in science and technology (S&T) grew by about two and a half times from 1998 to 2009.

According to a Bureau of Labor and Employment Statistics (BLES) report, the number of S&T workers who opted for overseas jobs rose from 9,877 in 1998 to 24,502 in 2009.

The numbers refer only to new hires or those leaving the country for jobs for the first time.

The BLES cited data from a study titled “International Migration of Science and Technology Manpower-OFWs,” which the Department of Science and Technology’s Science Education Institute (SEI-DOST) published in 2011.

S&T deployment

Results showed that during the 12-year period, S&T deployment grew by an average of 11 percent yearly, peaking at a 59-percent increase in 2001 when 17,756 professionals left, compared with 11,186 the previous year.

Based on the SEI-DOST study, S&T manpower includes physicists, chemists, mathematicians, statisticians, computing professionals, engineers, life science professionals, health professionals (except nurses), and nurses and midwives.

The study found that nurses and midwives represented the biggest group with an average of 9,348 deployed yearly, or 60 percent of the total S&T average of 15,555.

Brain drain is essentially OFWs in different attires.

How can migration be a “problem” when they are representative of individual choices and responses to the current political economic environment?

Have OFWs not been acclaimed as modern day heroes based on mainstream politics?

Whether it is about greener pastures or about career advancement or many other reasons, the point is that OFWs VOTED with their feet. Thus, the actions of science, math and technology graduates, simply reveals of the lack of income, if not career opportunities in the Philippines. These people are simply looking out for their welfare.

Are they not in a better state than becoming unemployed tertiary or college graduates which not only adds to political dependency and the government's fiscal problems but also dehumanizes or demoralizes the individual and their families?

So it is ok to send graduates of different courses or undergraduates, but it isn’t ok to send (S&T) graduates? So the government discriminates or plays favorite with different segments of OFWs? How moral is this?

I have dealt with this bromide lengthily here

Ah but of course, it said that when all you have is a hammer, everything else is a nail. When the government sees a problem they have the typical solution: spend, spend, spend and spend more of other people’s money

From the same article,

When the national budget for 2012 was pending in Congress last year and Malacañang was pushing for a 10-percent increase in allocations for state universities and colleges (SUCS), Budget Secretary Florencio B. Abad said the Executive supports the development of SUCs toward five priority areas that are expected to drive economic growth and employment.

So there you have it.

“Brain drain” has not been a problem when it gives the political authorities free advertisement, as “modern day heroes”, to advance on their political goals.

But “Brain drain” becomes a problem when the government has been itching to spend money other people’s money.

Doublespeak it is.

A Global Migration U-Turn?

In the past, people from developing countries flocked to developed nations mostly to find greener pastures. Such flow of migration caused controversial social issues as the mythical “brain drain”, “immigration restrictions” and etc..

As pointed out before, this trend seems to be in reversal.

From Gillian Tett of the Financial Times, (bold highlights added) [hat tip Sovereign Man]

It is a telling little indication of how the world is being subtly turned on its head, amid the rolling crises. During the past five decades, if anybody has been packing their bags to travel overseas to send remittances home, it has typically been the Brazilians, or other “emerging markets” peoples, not the developed Europeans. In recent years, Spain and Portugal have been pulling in vast quantities of migrant workers, both skilled and unskilled, as Poles and other eastern European workers have flooded to places such as the UK and Ireland. America has sucked even larger numbers of migrants, not just from Brazil but from other parts of South America. A couple of months ago, for example, the Pew Hispanic Center (PHC) in America released a fascinating report which calculated that 12 million immigrants have moved from Mexico to the US in the past four decades alone, to seek jobs and cash. “The US today has more immigrants from Mexico alone – 12.0 million – than any other country in the world has from all countries of the world,” the PHC report observed, noting that in absolute terms “no country has ever seen as many of its people immigrate to this country as Mexico has in the past four decades.”

Yet these days the most fascinating detail of the PHC report, which echoes that Boston lunch, is that a change is afoot. Last year “the net migration flow from Mexico to the United States has stopped and may have reversed,” it says, for the first time since records began.

Part of the explanation is “the weakened US job and housing construction markets, heightened border enforcement, a rise in deportations,” along with “the growing dangers associated with illegal border crossings and the long-term decline in Mexico’s birth rates”. But another issue is the improved “broader economic conditions in Mexico”. Life south of the border, in other words, is no longer quite as grim as it was before, or not relative to the risks of moving to the US.

Sadly, there is surprisingly little comparable data for other immigration flows. As Ian Goldin, an Oxford academic, has long lamented, the world lacks any centralised system to track migration flows in a timely way, let alone devise policies. Thus we do not really know how many young Portuguese or Spanish are seeking jobs in Latin America now (although Reuters reports that around 328,000 Portuguese hold work permits for Brazil, 50,000 more than last year, it is unclear whether these have been exercised). Nor is it clear how many Poles are returning to their homeland from the UK or Ireland, as austerity bites there; or how many young Irish may now be seeking their fortunes overseas (yet again). While I have recently heard plenty of anecdotes at American dinner parties and conferences about how young American graduates are becoming so disillusioned with their jobs markets that they are moving “temporarily” to Brazil or India, tracking data on that American flux – if it exists – is hard.

The other unmentioned factors are the repressive measures undertaken by governments of developed economies to forcibly wring out resources from the private sector, only to transfer them to crony or pet industries of the political class, that has led to sharp deterioration in investments and thus reduced employment opportunities.

Such is aside from the explicit policies of currency devaluation (or inflationism) by developed nations, that has caused boom bust cycles and thus reduced their respective standards of living. Example, the net worth of US families fell by almost 40% between 2007-2010

A reversal of the poor to rich global migration trend are manifestations of the wealth convergence dynamic.

Migration Trends: The Coming European Diaspora?

Past performance does not guarantee future results. This is not just about Wall Street, as long term trends do change in many aspects of social activities.

Take migration trends, what used to be popular—where citizens of emerging markets migrate to western nations—could now be in a process of reversal: Western people are leaving for Emerging Markets. 

After all, what usually drives social mobility is the search for greener pasture or about following the money.

We get this clue from this Wall Street Journal article (hat tip Bob Wenzel)

Economic distress is driving tens of thousands of skilled professionals from Europe, and many are being lured to thriving former European colonies in Latin America and Africa, reversing well-worn migration patterns. Asia and Australia, as well as the U.S. and Canada, are absorbing others leaving the troubled euro zone.

At the same time, an influx of Third World immigrants whose labor helped fuel Europe's growth over the past decade is subsiding. Hundreds of thousands of them, including some white-collar professionals, have been returning home.

The exodus is raising concern about a potential long-term cost of the economic crisis—a talent drain that could hinder the euro zone's weakest economies as they struggle to climb out of recession.

Talk about talent drain or brain drain is utter nonsense.

As the WSJ reports, the principal reason for the reversal of migration trends has been because of the lack or absence of economic opportunities. And this has been because of excessive welfare state, interventionism, bailouts of pet industries of politicians and boom bust policies which has been consuming capital and diverting resources to non-productive activities.

In short, brain or talent drain are symptomatic of failed government policies. 

More account of people in Europe voting with their feet, again from the same article.

During a prosperous decade that ended in 2008, Spain welcomed one of the world's biggest waves of immigrants. Foreign workers poured in at a rate of 500,000 per year to boost its construction and service industries, making the country Europe's prime destination for new arrivals.

Last year, with unemployment topping 20%, Spain became a net exporter of people for the first time since 1990, according to Spain's National Statistics Institute. Some 55,626 more people left the country in the first nine months of last year than arrived, the institute said.

Spaniards are scattering to better-off European countries and beyond, particularly to Latin America. Of the estimated 37,000 Spanish citizens who left the country in 2010, nearly 60% emigrated to countries outside the European Union.

At least 100,000 of Portugal's 11 million citizens moved abroad in 2011, after a decade of anemic growth and rising debt in Western Europe's poorest nation. In Africa, Angola's burgeoning economy has absorbed 70,000 Portuguese since 2003, according to the government-backed Emigration Observatory in Lisbon.

The number of Portuguese in Brazil on work-related visas shot up by 52,000 in the 18 months through June 2011.

Brazil is profiting from Europe's decline. It is wooing foreign engineers and other construction-related specialists to help carry out housing, energy and infrastructure projects for which the government has budgeted $500 billion through 2014, more than double Portugal's annual gross domestic product.

As one can observe what seems as a talent drain for Europe is now a talent gain for emerging markets.

People respond to changes in the environment and the political economy without directions from the government. Instead they are reacting to failed policies.

And allowing for social mobility will only force governments to compete for the most productive members of any society, as well as, force governments to become more competitive by embracing economic freedom. But of course this would be bad news for politicians, their cronies and their media cohorts..

Finally, the north south migration trends could just be the beginning

More from the same article…

With Europe's crisis and Brazil's boom, migration patterns are shifting again.

Brazilians are coming home in epic numbers. The government estimates that nearly half the country's émigrés have returned—from more than 3 million Brazilians living abroad in 2007 to fewer than 2 million today.

Again more evidence of the deepening wealth convergence dynamic borne out of globalization and the ballooning forces of decentralization relative to the baneful effects from the decadent welfare state.

Interesting times indeed.

Restricting Social Mobility Equals Poverty

Economist Bill Easterly commenting on the incidences of ghost towns in the US makes a point where restriction of social mobility leads to impoverishment.

I quote Bill Easterly, (bold highlights mine)

What if we had a law that everybody had to stay in their home state? What if North Dakotans had to stay in North Dakota despite the collapsing economy there? Then wages would collapse and we would have very poor North Dakotans. Happily no one would dream of such a stupid law. Instead we have middle class North Dakotans moving to other places voluntarily, where employers want to hire them voluntarily. And so (former) North Dakotans stay middle class.

For states…but not for countries. We treat migration usually as a non-option if Zambia has an economic decline, so Zambians stay there and get even poorer as the economy declines.

This is the great point made by Lant Pritchett in a classic article and in a CGD book. Why can’t we start treating Zambians like North Dakotans? If their home economy is declining, let them move to other places voluntarily, where employers want to hire them voluntarily. Why do we recognize the right to live wherever you want for North Dakotans and not for Zambians?

I guess the Philippines should be a worthy example.

Had many of our countrymen (kababayan) been prohibited from finding greener pastures around the globe, then we’d be worst off economically considering the relatively unfree political and economic environment that continues to beleaguer us.

That’s why anyone who claims that the exodus of people results to “brain drain” is no less than prescribing poverty for us.

Regional share of Philippine remittances (ADB)

Bottom line:

Freedom should encompass people’s mobility or to move around or migrate in accordance with their perceived interests.

We should allow people to come in, in as much as to go out. Where free markets is about voting with money on products and services, freedom of movement is about voting with the feet.

As Ludwig von Mises wrote, (bold highlights mine)

The principles of freedom, which have gradually been gaining ground everywhere since the eighteenth century, gave people freedom of movement. The growing security of law facilitates capital movements, improvement of transportation facilities, and the location of production away from the points of consumption. That coincides, not by chance, with a great revolution in the entire technique of production and with drawing the entire earth's surface into world trade, The world is gradually approaching a condition of free movement of persons and capital goods. A great migration movement sets in. Many millions left Europe in the nineteenth century to find new homes in the New World, and sometimes in the Old World also. No less important is the migration of the means of production: capital export. Capital and labor move from territories of less favorable conditions of production to territories of more favorable conditions of production.

The Brain Drain Nonsense

In reading media, it’s just amazing how incurably specious their treatment of social issues are.

Take for example the recent issue on supposed “brain drain”. It’s been emphasized that the Philippines appears to be helpless in the exodus of manpower as a result of demand from abroad.

This from the Inquirer.net,

Scientists, engineers, doctors, IT specialists, accountants and even teachers are among the English-speaking talent heading to foreign lands, leaving the government and private companies scrambling to find replacements.

"There is a skills haemorrhage. We are losing workers in the highly professional and skilled categories," Vicente Leogardo, director-general of the Employers' Confederation of the Philippines, told Agence France-Presse.

While they (government and business groups) don’t exactly say it (as this would construed as politically incorrect since OFWs are now an important political force!), the undertone suggests that these should be stopped. How? By Fiat!

I may be wrong but the following seems to be a clue.

More from the same article, (emphasis mine)

The government has been seeking ways to upgrade salaries and benefits, according to Myrna Asuncion, assistant director of the government's economic planning department.

"But local salaries can only go up by so much before they start hurting the competitiveness of local industries," Asuncion told AFP.

"We want to provide employment opportunities in the Philippines but there are some sectors that say salaries are already too high," she said.

You see the problem?

On the supply side, these anecdotes only reveal that the government and Filipino companies are “afraid” or "reluctant" to engage in market competition by paying market rates for these skills. With foreign companies willing to pay local skilled workers enough to tilt the latter’s (cost benefit tradeoffs) choice, thus, they decry the “brain drain”.

In short, this is simply demand and supply or Economics 101 at work.

Of course, media, politicians and their coterie (business interest groups, politically blind academicians and experts) loathe demand and supply. They believe in Santa Claus or free lunch economics.

And here are very important factors which they don’t say:

From TradingEconomics.com

First of all, they don’t tell you that the lowered standards of living have been the result of past collective policies that has resulted to inflation or the loss of purchasing power of the Peso.

Over the years, this has significantly contributed to the reduction of competitiveness. Think capital flight.

Chart from the BSP

Next, they don’t tell you that a lower Peso (falling from an exchange rate against the US dollar at 2 in the 1960s to 55 in 2005) doesn’t necessarily fuel an export-industry boom.

So policy manipulations (such as welfarism) to diminish the Peso’s worth only sustains distortions in the economic system, via protectionism -which favors select political groups (think cronyism). And these exacerbate the outflows of labor force.

In other words, protectionism is mostly a zero sum game and hardly contributes to goods-services value formation.

Chart from the OECD

Another, from the demand side, the demographic imbalances or falling fertility rates in developed economies will sustain the need for labor manpower from emerging markets. And the Philippines given the current political economic setting is likely to be a major participant for a long time.

Importantly, with increasing technology based globalization, skilled jobs will be a major contribution to the “labor” aspect of globalization.

Chart from the TradingEconomics.com

Essentially the so-called “brain drain” is a symptom of an underlying disorder.

And one of the primary variable is lack of desire to compete.

So even at relatively low wages (compared to OECD), the market’s response to price signals set by the downtrodden Peso have been undercut by the regulatory, bureaucratic, legal, (property rights) and tax environment.

According to Trading Economics, ``The Ease of doing business index (1=most business-friendly regulations) in Philippines was reported at 141.00 in 2008, according to the World Bank. In 2009, the Philippines Ease of doing business index (1=most business-friendly regulations) was 144.00. Ease of doing business index ranks economies from 1 to 181, with first place being the best. A high ranking means that the regulatory environment is conducive to business operation.”

The Philippines is shown as one of the world’s least business friendly environments in the world, thus, resonating the signs of refusal to adjust to the global market climate. Instead, these interest groups seek political cover—which doesn’t change the nature of economics.

Finally, it’s equally nonsense to imply that brain drain will suck out the heck out of our skilled workers. This will only be true if you think the Philippines is immune to the basic laws of economics.

Why?

Because price signals say supply will adjust to demand!

Chart from TradingEconomics.com

Exploding remittances and net migration trend reveals how these dynamic would unfold.

The fertile population of the Philippines should “naturally” respond to these dynamic by having more Filipino youth take on more specialized courses that would meet global demand. Hence restrictions on these adjustments should be avoided.

Unless Filipinos are daft, which I don’t think we are, except in the eyes of politicians and media, I trust that the law of economics would prompt “brain drain” to result to a net positive benefit for the Philippine society, because it is a purposeful choice made by millions of individuals (our countrymen) in response to the current environment.

If we truly want to reverse “brain drain”, then we need to build capital.

And how do we that?

By sloughing off protectionism, cronyism, paternalism and embracing competition, free trade and economic freedom.

As Ludwig von Mises once wrote,

Under a system of completely free trade, capital and labor would be employed wherever conditions are most favorable for production. Other locations would be used as long as it was still possible to produce anywhere under more favorable conditions. To the extent to which, as a result of the development of the means of transportation, improvements in technology, and more thorough exploration of countries newly opened to commerce, it is discovered that there are sites more favorable for production than those currently being used, production shifts to these localities. Capital and labor tend to move from areas where conditions are less favorable for production to those in which they are more favorable.

That’s what media and the mainstream won’t likely tell you.

Update:

Outside business administration the major growth area in Philippine education is practically where the skilled exports has been taking place (red arrows)--namely, Medical Sciences (strongest), Math and computers sciences and engineering (growing but variable), that's from NSCB data (see below)

Bottom line: The law of economics works!

Brain Drain Is Freedom And Choice

There is this popular impression that brain drain (migration outflows) signifies as a social cost.

A UN study by Michael A Clemens refutes this notion and suggests that brain drain dynamics function similar to domestic urbanization trends and is a net benefit to society.

From Mr. Clemens, (bold emphasis mine)

``All of these “best practice” policy levers have two things in common:

First, they expand the choices available to skilled workers. For example, rural service incentives reduce the tradeoff between serving underserved populations and personal hardship.

``Second, they are more effective than shaping professionals’ migration choices per se because they address the underlying causes of those choices. For example, removing barriers to professional employment at home can change decisions freely made by potential emigrants. The common trait of “worst practice” policies is that they seek to limit skill flow itself, which is to say, to limit choices by skilled workers.

``It is time to bury the unpleasant and judgmental term “brain drain”."

Read the rest of the study here

In short, the pejorative term "Brain drain" serves to allocate labor where it is needed most. And it gives people the freedom to work for personal or career advancement. Moreover, brain drain could also be seen as an escape valve from unfree economies.